Pound Having a Tough Time

On Monday, September 28th, the British Pound continues moving within a narrow sideways channel against the USD; the asset is mostly trading around 1.2770. This sideways movement started after an active decline of the instrument due to a combination of different factors.
 
First of all, a quick recovery of the American Dollar that has been seen recently is giving no chances to other traded currencies. As the number of new coronavirus cases in the world is quickly increasing, the demand for the “greenback” is going up as well. As long as this factor remains valid, the potential for the Pound recovery is very limited.
 
Secondly, there are huge problems with Brexit, which was moved on the back burner, away from investors’ attention, in the last six months. And it’s really serious: Boris Johnson’s government is trying to lobby for a bill, which will allow the United Kingdom to unilaterally abandon the performance of some articles of the agreement that was approved last winter. It’s a great risk to completely break up with the European Union because the patience of European Policymakers is wearing thin.
 
Potential complications between the United Kingdom and the EU imply huge risks, so the more stress, the deeper the fall.
 
As we can see in the H4 chart, GBP/USD is correcting inside a wide consolidation range around 1.2744. The main scenario implies that the pair may complete this correction at 1.2820 and then form a new descending wave with the target at 1.2600. From the technical point of view, this scenario is confirmed by MACD Oscillator: its signal line is moving outside the histogram area towards 0. Later, the line is expected to rebound from 0 to the downside, thus implying another descending wave and further growth.
 

 
In the H1 chart, GBP/USD is forming a correctional Flag pattern and moving at 1.2820. Today, the pair is expected to form the fifth ascending structure with the target at 1.2820 and then start a new decline to break 1.2744. Later, the market may continue moving downwards to reach 1.2620. From the technical point of view, this scenario is confirmed by Stochastic Oscillator: its signal line is moving within the “overbought area” at 80 and may resume falling towards 50. If later the line breaks this level, it will continue moving to reach 20.
 


Author: Dmitriy Gurkovskiy, Chief Analyst at RoboForex
 
Disclaimer
Any forecasts contained herein are based on the author's particular opinion. This analysis may not be treated as trading advice. RoboForex bears no responsibility for trading results based on trading recommendations and reviews contained herein.