GBP/USD has bounced off the lows as investors speculate the Fed delays tapering but the current move could turn into a mere "dead-cat bounce." Yohay Elam, an Analyst at FXStreet, explains why bears may take back control.
See: GBP/USD set to break below July lows at 1.3570 – ING
Elevated UK covid cases and mixed data to drag sterling back down
“Federal Reserve Jerome Powell is set to deliver his speech at the gathering on Friday, and some even think he would take the extra step of pushing back against tapering. However, the dollar downfall is unlikely to continue, especially not against the pound.”
“The reason for the Fed to refrain from reducing support comes from the virus, which means weaker economic activity in the world's largest economy. That could lead to the greenback receiving fresh safe-haven flows. Moreover, cases are on the rise in the UK, and that could send sterling down.”
“Another reason to foresee sterling sliding comes from the data. Markit's preliminary UK Services Purchasing Managers' Index for August tumbled down to 55 points, far below 59 expected. Softer business sentiment implies a slower recovery.”
“Support awaits at 1.36, which was Friday's trough. It is followed by 1.3570, which was the trough in July. Further down, the psychologically significant 1.35 level awaits.”
“Resistance is at 1.3660, the daily high. It is followed by 1.3725, which supported sterling last week, and then by 1.3760 and 1.3785.”