GBP Weighed Down By COVID Resurgence

From the fundamental point, the pound sterling is extending weakness in light of a weekly update on US unemployment claims. The number of initial jobless claims grew 2K last week whereas the number of continuing claims for unemployment benefits dropped 145K. Investors attach more importance to continuing claims also referred to as insured unemployment.

US Continuing Unemployment Claims

Notably, if the US statistics is to blame for the pound’s weakness, the euro should behave roughly the same as the sterling. However, the euro was growing for the whole trading day yesterday. Besides, the market was trading quietly when the jobless claims were released. In fact, the sterling had already completed its decline by that time. Since then, it began a kind of retracement. Volatility was moderate. To sum up, the US unemployment claims have nothing to do with the sterling’s slide.The reason is the coronavirus resurgence in the UK. The situation is getting worse day by day on the back of London’s announcement about lifting all restrictions imposed with a view to containing the pandemic. So, there is the likelihood that the government will have to take the last-minute decision to postpone the timeline for lifting restrictions. Earlier, the authorities stated that lockdown measures would be cancelled on July 19.Today the pound sterling is expected to go on drifting downwards due to expectations of contraction in the UK industrial production. The industrial output is projected to have slowed down to 20.6% in May from 27.5% in April year-on-year. Annual rates are still disfigured by the low base effect. So, it would be better to take into account the monthly data which logged expansion of 0.8%, worse than the expected 1.2% increase. In other words, the British industry is getting into gear much slower than anticipated.

UK Industrial Production, y/y

Despite the mixed dynamic, GBP/USD is following the overall bearish trajectory because support formed on July 2 is acting as a gravity force.Volatility is a bit lower for a while but everything could change as the pair could accelerate momentum.Currently, GBP/USD is trading quietly at around 1.3785.

Amid the bearish trajectory, traders are planning short positions. However, to confirm a clear-cut bearish momentum, the price has to hold firmly below support at 1.3730 formed on July 2. Otherwise, the pair will carry on trading at about 1.3785.

In terms of complex indicator analysis, we see that all technical tools are still signaling the downward move that suggests selling opportunities.

InstaForex Group

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