As countries seem to have done nearly all they can to stop the spread of the coronavirus and its economic fallout, traders sit and wait. They wait for the number of daily new infected cases and they wait for the daily new number of deaths. If these numbers are decreasing, traders begin to expect a plateau in the “curve”. If the numbers are increasing, thoughts of a slowdown in cases are lost. Traders must wait until the next day’s report to try and determine if there is an apex in the curve, which will allow them to begin to put money back to work.
The UK has an additional caveat that traders watch to determine the value of the Pound, and this is the health of Prime Minister Boris Johnson. The Prime Minister announced on March 27th via twitter that he had tested positive for the coronavirus and spend 7 days in self-isolation. However, on Sunday, Johnson was admitted to the hospital and on Monday was moved into the Intensive Care Unit (ICU). Upon the news that Johnson was moved to the ICU, GBP/USD sold off 60 pips. On Tuesday, when it was announced that he was stable and in “good spirits” GBP/USD spiked 80 pips.
(A spokesman for Johnson said he is “receiving oxygen treatment and breathing with any other assistance” i.e. a ventilator).
As many USD currency pairs have done over the last month, GBP/USD has sold off from its high near 1.3200 on March 9th down to a low of 1.1410 on March 20th. The pair bounced to the 61.8% Fibonacci retracement level from that same time period to 1.2485 on March 27th and has been consolidating since. GBP/USD is currently in a pennant formation. Technically, the formation would suggest a breakout to the upside with a target near the January-February range between roughly 1.2850 and 1.3200. However, the reason GBP/USD had bounced from summer 2019 lows to that point is because Boris Johnson has secured an election victory, and therefore, Brexit
In the short-term, if Boris Johnson continues to recover and defeats the virus, GBP/USD should break out to the top side. If that happens and price can clear the previous high and 61.8% Fibonacci retracement level near 1.2510, it will run into significant resistance at the 200 Day Moving Average and horizontal resistance between 1.2650 and 1.2725! If for some reason price breaks lower, it could go down and test the lows. As I mentioned before, the reason GBP/USD was near above 1.3200 was because of Boris Johnson.
However, regardless of Boris Johnson’s health, the upside looks limited!