However, markets may have gotten ahead of themselves and the dollar may already be stretched. It would likely take an extraordinary NFP to sustain the greenback’s rally, especially as the weekend nears and traders may want to book profits.
A “buy the rumor, sell the fact” response may reverse an initial knee-jerk reaction in favor of the dollar – GBP/USD may rebound shortly after hitting new lows.
Another factor that favors a V-shaped move in pound/dollar is the coronavirus outbreak. Markets have calmed after downfalls early this week and at the end of the previous one. However, the disease is far from being contained and the economic damage continues widening.
The number of people infected has surpassed 31,000 and the death toll tops 600, including the whistleblower doctor who provided an early warning only to be harassed by the police, later contracting the virus, and eventually dying. On the economic front, Korea giant carmaker Hyundai was forced to shut production down due to a lack of parts from its suppliers in China’s Hubei province.
This Friday may see a renewal of fears taking over markets. Last week, a run to safety saw investors rotate from stocks to bonds that resulted in lower yields on US treasuries, pushing the dollar lower with it.
The Relative Strength Index on the four-hour chart is still above 30 – outside oversold conditions and allowing for further falls. Moreover, the currency pair is still above the round 1.29 level which was low in late December.
Momentum remains to the downside and GBP/USD is trading below the 50, 100, and 200 Simple Moving Averages.
Below 1.29, the next cushion is at 1.2875, which was a low point in early December. Next, we find 1.2820, dating back to November, followed by 1.2775.
Resistance is at 1.2940, late January’s low, followed by 1.2975, a cushion from earlier last month. 1.3010 worked as support earlier this week and it is followed by 1.3050 and 1.3075.