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GBP/USD Holds In a Range on a Sudden Drop in Volatility

Jignesh Davda

Weekly price swings of 5% or greater had been the norm for GBP/USD in the last three weeks but volatility has declined sharply and the pair is seen virtually unchanged for the week in early trading on Thursday.

The range in the currency pair comes despite a rebound in the dollar. In the week thus far, the greenback has gained against all of its major counterparts except for the Japanse yen while Sterling is essentially flat against the greenback.

House prices in the UK appear to be unaffected by the Coronavirus at this stage as the Nationwide house price index was reported to rise 0.8% in March, on a seasonally adjusted basis. Annually, house prices rose 3%, up from 2.3% in the year to February.

The markets will shift their attention to the US labor markets as the weekly unemployment claims report will be released later today. Last week, the report showed an additional 3.2 million people claiming benefits which was a record high. Analysts are expecting this week’s report to reflect an additional 3.6 million people filing for claims.

The jobless claims report will set the tone for Friday’s nonfarm payrolls report where analysts expect a decline of 100 thousand jobs and a rise in the unemployment rate to 3.8% from 3.5%.

Technical Analysis

GBPUSD Hourly Chart

The original range in GBP/USD between 1.2285 and 1.2477 has been narrowing and price action has favored the upper end of the range.

Considering the heightened volatility ahead of the range, the pair stands to see a notable price swing if it is able to break out from its range.

While GBP/USD has held up well during the recovery in the US dollar index (DXY) this week, the index may offer clues as to the direction in the currency pair.

DXY is currently facing the same resistance level that triggered a turn in October and in February. A bullish breach would signal a continuation in the dollar recovery.

On the other hand, if sellers continue to cap the dollar, GBP/USD could break higher from this point. A rally above 1.2477 would signal a bullish continuation.

Bottom Line

  • GBP/USD remains within a range despite a recovery in the dollar this week.
  • A range break in the currency pair is likely to accompany renewed volatility, similar to what was seen in the last three weeks.
  • The weekly US jobless claims report will be released today and could accompany a volatile reaction as the labor market is expected to suffer as a result of the virus.

This article was originally posted on FX Empire

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