GBP/USD Stabilizes After Oil Related Rout

Cable staged a modest rebound in early trading on Wednesday, after falling to a two week low on Tuesday. The US dollar was broadly boosted by its safe haven appeal following a historic crash in oil prices and further weakness in global equity markets.

The price of Brent crude, the international benchmark, dropped to its lowest level since June 1999 on Wednesday. Reduced demand due to the coronavirus pandemic continues to weigh on oil prices globally. In addition, both onshore and offshore storage spaces are quickly filling up.

Data from Johns Hopkins University shows that coronavirus COVID-19 global cases have risen to 2,580,729 with 178,371 fatalities. US President Donald Trump, said in a tweet that he would sign an executive order later on Wednesday “prohibiting immigration” into the country.

On Tuesday the World Health Organization warned that “the worst is yet ahead of us.” Director-General Tedros Adhanom Ghebreyesus stated: “We want to reemphasize that easing restrictions is not the end of epidemic in any country. Ending the epidemic will require a sustained effort on the part of individuals, communities and governments to continue suppressing and controlling this deadly virus.”

Another factor weighing on sterling is the familiar saga of Brexit. The Scottish government called for Boris Johnson to seek a two year Brexit transition period extension during the coronavirus pandemic. While the pandemic has disrupted negotiations, the UK government has repeatedly insisted that it has no plans to extend the post-Brexit transition arrangements due to end on December 31.

Looking at the GBP/USD daily chart we can see that the price remains below the 200-period simple moving average and that a bearish death cross pattern has formed. Potential support lies at the prior low of 1.2159, while the 50 period moving average overhead stands as nearby resistance.