The Great British Pound was under pressure last week as negotiations between the UK and the EU collapsed. Both sides admit very little progress, and the EU’s Barnier went so far as to say he was disappointed by the lack of ambition on the British side. The current deadline is June 30th and UK’s Johnson has said several times that he will next extend it. The Telegraph reported that BOE’s Haldane said over the weekend that BOE is “considering” negative rates. BOE will not meet again until June 18thbut over the past few months, central banks have applied stimulus to “as needed”. See for more comments from BOE officials. On Tuesday, the UK releases their change of claims counter for April. Expectations are +676,500 new claims against 12,200 in March, but like most of the terrible data for April, this may not have too much impact on the markets.
On Sunday night, the US Fed’s Powell said the US economy may not recover until late 2021, and he fears Congress’s first trillion trillion bailout may not be enough (Congress is working on an extra $ 3 billion pandemic relief package). He also said the Fed has more stimulating ammunition if needed. Powell and Treasury Secretary Mnuchin will testify about the effects of Coronavirus on the US economy of the Joint Economic Committee. Powell also speaks Thursday. His comments will be closely monitored for any negative interest rate language. Last week, Fed members spoke unanimously against negative interest rates, but the Fed Funds curve is setting negative rates until mid-2021.
Both counties will release their manufacturing and service PMIs in May. This will be the first look at real data for May for both countries. In addition, both countries are in the process of “reopening” their economies. Daily updates of coronavirus for each country are monitored to see if the increase in new cases continues to decline.
On a daily timeframe, there are two possible setups in the game. The first is a double top formation of 1.2500 (solid green lines) which failed twice at 61.8% Fibonacci retracement level from the highs on March 9th for made on March 19thth. The neckline for the double top was broken at 1.2200. The target is the height of the pattern added to the breakdown point, which in this case is close to 1.1740. The other pattern in the game is a head and shoulders pattern (dotted blue line). The target for a head and shoulders is the distance from the head to the neckline added to the neck break point. In this case, the target is near 1.1900.
Source: Tradingview, FOREX.com
One could see the head and shoulders goals as a first goal and make a decision there as to whether this can play our further as a double peak. Keep in mind that there is a significant support zone between 1.1850 and 1.2000 dating back to October 2016. Then, horizontal support crossed like 1.1650 and eventually the recent lows near 1.1400. Resistance in the near term is 1,2200, which is the neckline of the double top. Above there is resistance at the neckline on the head and shoulder pattern near 1.2420 and then the double peak is higher at 1.2500.
There may be significant volatility in GBP / USD this week given Brexit discussions, BOE and FED comments on negative exchange rates, financial data and technical setup. Be sure to use appropriate risk / reward ratios!