GOLDWELL：Daily Market Recap - GBPUSD Gaps Lower on New Virus Strain

The British Pound tumbled from its Friday close on market open as sellers rushed to short the GBPUSD in light of the recent discovery of a new variant of the covid-19 virus spreading at an alarming rate in the UK. The GBPUSD fell from its 1.35 handle down to the 1.32 early in the session and is now trading closer to the 1.33 mark.

UK Prime Minster Boris Johnson has aggressively tightened lockdown restrictions across the nation in response to the new strain of covid-19. Health secretary Matt Hancock has raised the alarm that the newest strain is “out of control” and will be “very difficult to keep under control until the vaccine has rolled out”.

People close to the matter have said that they expect tier 4 restrictions to be in place until Easter, as the pace of vaccination will need to ramp up significantly in order to reach the 20-million target before any easing of restrictions can be envisioned.

With 35,928 new infection cases recorded on December 20th, the largest seen in the UK, neighboring EU countries have already decided to ban all travel to and from the UK while other nations around the world are following suit.

The outlook on the British Pound is quite poor given the continued lack of progress seen in the Brexit trade talks as enter the final 10 days of the transition period. The discovery of the new strain of covid-19 is adding to the already gloomy outlook with the UK economy likely to take a strong hit from the re-imposition of strict lockdown measures in a critical period for retailers in the run-up to Christmas.

From a technical perspective, the GBPUSD is under pressure from a stronger US Dollar and increased economic uncertainty, and as a result, the pair has crashed through two support zones at 1.34 and 1.326 before stabilizing in the mid-range. The pair appears to have found some balance with markets needing some time to process the new info on the new covid-19 strain in the UK.

(Chart Source: Tradingview 21.12.2020)

For now, the momentum is geared to the downside and looks set to cement a range of the GBPUSD between the 1.325 support level and 1.345 resistance mark in the short term. Buyers have shown some resilience in the pair as seen with the pullback from the daily low at 1.31877. Speculators will be eyeing news on whether the recently developed covid-19 vaccine remains effective on the new UK strain for further indication of upside potential.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.