GBPUSD The British pound exits the bottom of its long-term ascending channel

After the postponement by one month of the lifting of the latest health restrictions in the UK, it is now the Fed's turn to put pressure on the pound. The GBPUSD is accelerating its decline since Wednesday night after the Federal Reserve changed its tone and now expects two rate hikes in 2023.

The positive vibes surrounding the British pound are beginning to fade as an increase in coronavirus cases dampens the optimism that had greeted the country's successful vaccination program.

The pound fell 0.3 percent against the U.S. dollar on Friday to $1.3885, dropping to its weakest level since early May, and losing 1.6 percent since Wednesday's Federal Reserve meeting.

The country recorded more than 11,000 new cases of the Covid-19 virus on Thursday, the highest number since Feb. 19, even though the country has injected more than 42 million people, or about 80 percent of the adult population, with one dose of vaccine, and more than 30 million with two doses.

The problem has been the rise of the Delta variant of the coronavirus, first discovered in India, which doubles the risk of hospitalization compared with the previously dominant variant in Britain, according to a Scottish study.

The increase has already convinced Prime Minister Boris Johnson to delay the full reopening of the country's economy by a month, while retail sales unexpectedly fell 1.4 percent between April and May.

Adding to sterling's woes is the increasingly fractious nature of relations between London and Brussels, particularly regarding trade between Northern Ireland and the rest of the U.K.

“Brussels' patience with London's [attempt] to have its cake and eat it too, is wearing thin,” analysts at ING (AS:INGA) said in a note. Indeed, there is a risk that protocols will be triggered and tariffs will be threatened more seriously.&quot

The political pressures facing the British government are not just external after Prime Minister Johnson suffered an embarrassing defeat when his Conservative Party lost a parliamentary by-election in his party's heartland, just miles from his own seat.

All of this marks a change in tone for a currency that has risen 0.7% since March. Sterling is under pressure, currently trading at a one-month low below 1.40 and at the bottom of its ascending channel in which it has been oscillating since the start of the pandemic, validating the first bearish target of Monday's trading idea.

If the breakout from the bottom is confirmed at Mondays market open, it would be a major technical signal for a bearish reversal in the GBPUSD. The next supports to watch for would be the March/April low at $1.3680 and then the September low at $1.2675. The bearish outlook would be invalidated in case of a rebound above $1.40. Traders may open positions in a bearish configuration to test the reaction at 1.37404. We can expect a bullish bounce off this level in the near term for traders seeking to re-enter into positions.

(Chart Source: Tradingview 20.06.2021)

Overall, we can see an excess of short positions by commercial traders according to the latest Commitment of Traders (CoT) data. The net short position of commercial traders was once larger than this, but it is high enough to claim a strong decline in the pound against the dollar.

Support & Resistance Levels:

R3 1.4000

R2 1.3964

R1 1.3870

S1 1.3740

S2 1.3680

S3 1.2675

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.