For the third day in a row, the GBP/USD is moving amid a stable bullish momentum around the 1.3360 level, waiting for catalysts to break out of the bearish channel. At the beginning of this week's trading, the currency pair fell to the 1.3174 support level. The pound's gains are still facing the threat of Omicron fears, which forced countries around the world to impose restrictions. Although Britain did not announce all restrictions, the government warned that things getting out of control mean their return.
Britain recorded 106,122 new infections with the virus daily, which is the highest total of the epidemic and the first time the number exceeded 100,000 infections. Confirmed infections are up nearly 60% in the past week, driven by a highly transmissible omicron variant. The British government has reintroduced face masks in stores, ordering people to show proof of vaccination at nightclubs and other crowded places. British Prime Minister Boris Johnson has said he will not take new measures before Christmas Day, but may do so after the holiday.
Health authorities in Britain are racing to give all adults a booster vaccine to help combat omicron. So far nearly half of the UK population has had a booster dose.
One of the leading investment banks on Wall Street says that the outlook for the British pound is not as bad as current investor sentiment indicates. As such, Goldman Sachs sees some 'positive steps' regarding sterling fundamentals lately and expects sterling's 'recovery' to extend against the euro.
“The sterling story hasn't been entirely clear in recent months, but we think investors may have become too negative for the pound,” Goldman Sachs Forex analyst Zach Bundle says in a weekly FX briefing. The outlook comes amid short-term weakness in the British currency thanks to jittery global investor sentiment linked to concerns over the Omicron spread.
The domestic currency withdrawal comes amid growing concerns about the rapidly increasing cases associated with the new variant, and news media are reporting a strong possibility of partial Covid restrictions being reimposed at the end of the year. But for Bundel, the UK context is not unique in this respect. “Recent developments in the COVID-19 virus have been concerning and will likely have some impact on the economic outlook, but this is not a UK-specific phenomenon,” says Bundle.
Technical Analysis
On the daily chart below, there is a clear breakout of the bearish channel. To reinforce the breaklout, the price must launch to the resistance levels 1.3520 and 1.3660. This may happen if risk appetite increases and fears about the epidemic subside, along with political stability in Britain. On the other hand, a move towards the support level at 1.3230 will bring the currency pair back to the vicinity of its bearish channel again, and the current hopes will evaporate. I still prefer selling the currency pair from every bullish level.
The pound does not anticipate important British releases, so all the focus of the currency pair will be on the announcement of US economic data, which include the announcement of durable goods orders numbers and the reading of the personal consumption expenditures price index, in addition to a reading of the weekly unemployment claims and new US home sales and average income and spending of a US citizen.
