Sterling Surges As Dollar Declines Before Election Day

Intermediate
  • GBPUSD Spot is driven by COVID-19, Brexit and the U.S. election
  • Is the President in rude health? There is not any consistency in his message
  • Market  sentiment will swing behind Sterling as the election draws near
  • Sterling will soar to challenge the 200-day moving average

GBPUSD Spot endured a sideway pattern of trading on Friday morning. However, this meaningless meander seemed to pivot at 1.2950 as Sterling found support and booked gains to close out the U.S. session at 1.3046.  This keeps GBPUSD firmly within the impulsive that has been in place since May 12 as shown in Figure 1.

GBPUSD 12 month
Figure1: GBPUSD 12-Month Chart  and Past Weeks Spot, 50dma and 200dma.
Source: www.investing.com, Spotlight Ideas

Pressure on the Pair

Any currency pair will see pressure on both the “Base” and “Quoted” elements. COVID-19 is a factor that buffets both Sterling and the Dollar. Single factors are Brexit for Sterling and the Presidential election for the Dollar.

For the time being we appear to be a vacuum re developments surrounding Brexit and as such it will mean the path the GBPUSD pair follows will be driven by the ebb and flow of the November 3 election. Given Joe Biden seems to be a relatively stable commodity, the Dollar and hence the pair are currently driven and determined by the rants of Donald Trump.

Did Someone Say Stimulus?

When the President was released from the “Walter Reed Army Medical Center” (U.S. spelling) he suddenly called the Republican negotiating team over a stimulus package back. Talks were abandoned… so sending the Dollar reeling, Figure 2.

gbpusd one week
Figure 2: GBPUSD One-Week
Source: www.investing.com, Spotlight Ideas

There was then an overnight Twitter storm when the President said the airlines should be supported. Supported by stimulus hopes, the Dollar and  Wall Street’s main indexes opened in the positive territory. However, whilst stocks made further headway, the Dollar weakened again.

What this seems to imply is that Sterling is the currency on an upward tear with spot looking to close in on the 50-day moving average that is located at 1.3290.

gbpusd one month
Figure 3: GBPUSD One-Month Chart
Source: www.investing.com, , Spotlight Ideas

I am looking for the deluge of contradictory dialogue from the U.S. increasing over the next 23 days that are left until polling day. If the result is not clear cut, we have no result on the 3rd/4th and if Donald Trump refuses to engage in a peaceful transition I expect the Dollar to fall.

I target GBPUSD to a first target of 1.3290. I see Sterling breaking the highest technical level marked in Figure 3  with the 200-day moving average at 1.3290 as my objective; my stop is at 1.2863.

Macroeconomic Strategist

Stephen Pope is the Managing Partner of Spotlight Group. He has worked in the world of finance since 1982 and has performed d...continued

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