Bearish case
Short the GBP/USD because of the stronger dollar.
Target the lower side of the rising channel at 1.3400.
Have a stop loss at 1.3700, which is at the upper side of the channel.
Bullish case
Buy the GBP/USD at 1.3600.
Have a take profit at 1.3700.
Add a stop loss at 1.3500.
The GBP/USD pair is under intense pressure as the number of coronavirus cases in the United Kingdom (UK) and China continue to rise. It is trading at 1.3505, which is 1.50% below the year-to-date high of 1.3707.
Coronavirus Cases Rising
The number of coronavirus cases in the UK continued rising even as the country continued distributing the vaccines made by Pfizer and Moderna.
The latest numbers showed that the cases rose by more than 59,000, the highest daily increase on record. That brought the total number of infections to more than 3.02 million while the total number of deaths has soared to more than 80,000.
These numbers come even as the country is in a seven-week lockdown that was continued last week. As a result, there are risks that the UK will go through another recession, which will likely force the Bank of England (BOE) to push rates to the negative zone.
Also, there are risks about the UK’s public finances, with the overall debt rising substantially. The latest numbers showed that the UK budget deficit widened to more than $323 billion in the first eight months of the year. Total debt has soared to more than £2.1 trillion.
Meanwhile, the GBP/USD is also falling due to the rising number of cases in China. The government has placed Hebei province, which borders Beijing under lockdown to curb the spread.
This increase has brought further risks to the world economy, which has in turn led to a higher dollar. The US Dollar Index, which measures the strength of the greenback against a basket of currencies, has risen by more than 0.30%. Other financial assets like stocks, commodities, and cryptocurrencies have also dropped substantially.
GBP/USD Technical Outlook
The GBP/USD has been under pressure lately. On the daily chart, the pair has fallen by more than 1.30% from its highest level this year. Also, the price has moved from the upper side of the ascending channel while the bearish divergence of the Relative Strength Index (RSI) has continued.
Therefore, in the near term, the pair will continue falling as bears target the lower side of the channel at 1.3400. On the flip side, a move above 1.3600 will invalidate this trend because it will send a signal that there are still more buyers in the market.
