GBP/USD slumped by 250 pips last week after an unsuccessful test of 1.39. On Friday, the currency pair closed at near 1.3669, the lowest level in two months, after a four-day nonstop decline. Today, first GBP/USD was trading lower, but it sharply reversed upwards in the early New York trade. The overall weakness of the greenback enabled the buyers to develop a notable upward correction. So, the price rebounded by almost 100 pips. Yet, in other GBP-related forex crosses the pound sterling still lacks confidence. It means that the correctional climb of GBP/USD is caused entirely by a dip in the US dollar index.
Besides, another factor of some support is the fact that today the UK authorities are easing lockdown restrictions for the first time since November 2020. From now on, retail shops, gyms, zoos, beauty salons, summer bars and restaurants in the open air are available for public. Nevertheless, some restrictions are still valid. For example, the Britons are not permitted to travel abroad. This measure is unlikely to be cancelled at least until mid-May. On the whole, the UK is following its road map according to which lockdown will be lifted in full in August – September. The Kingdom is taking the lead in the pace of mass vaccination. As of today, 7 million people or 10% of the population have received both doses of the vaccine. Daily rates of new coronavirus cases have decreased to 3-4K people in March/April from 60K in January. Such developments lead to the conclusion that the UK is on track to follow its schedule of gradual lifting lockdown measures.
However, there is a fly in the ointment. The latest events in Northern Ireland as well as downbeat macroeconomic data dampened optimism about progress in the battle with the coronavirus. Clashes in Belfast and some other towns in Northern Ireland are raging for 8 days straight. Erratic protests have sparked off clashes with the police.
During the social riots, at least 50 policemen have been hurt. In light of the death of Prince Philip, Duke of Edinburgh, protesters announced a truce, although until the nationwide mourning is over. According to mass media reports, the reason behind escalating jitters is the discontent of the EU advocates with some Brexit clauses. To be more exact, the clause on Northern Ireland actually creates the customs border between Northern Ireland and the rest of the Kingdom. So, the transparent border now runs between the two parts of the Ireland isle.
Importantly, the Northern Ireland controversy was recognized as a delayed-action bomb in the time when the Brexit talks were conducted by Theresa May. Let me remind you that a bloody ethnopolitical conflict has been unfolding on the isle of Ireland for half a century. The rebel forces are pushing ahead with the exit of Northern Ireland from the Kingdom with subsequent annexation to the Republic of Ireland. According to various estimates, about four thousand people have been killed during this long-running conflict. The truce was reached only in 1998, when the parties concluded the "Belfast Agreement". The main points of this agreement state that the Northern Irish separatists give up their territorial claims In turn, London introduces local self-government and parliamentarism in this region. In addition, the above agreement eliminated the border between Northern Ireland and the Republic of Ireland, there was a special economic zone regime.
At present, the fragile balance of mutual interests has collapsed. Rebels prefer to vent their anger in the streets. Ireland suggests that Dublin and London arrange the emergency summit due to escalating political tensions in Northern lreland. However, London has not responded yet. Citing British sources, Boris Johnson fears to confront the rage of the Kingdom advocates. Indeed, there is a political movement to support the membership of Northern Ireland in the Kingdom. So, the mutual summit could be treated as Dublin's interference in the UK interior affairs.
Meanwhile, the situation is in suspense. One thing is clear. Once the nationwide mourning is over, the standoff will click into gear. In particular, a spokesman of Boris Johnson stated that serious disagreement had not been settled yet with Brussels on the issue of the Northern Irish border. Bearing this fact in mind as well as London's unwillingness to hold three-party talks, more protests will follow in the near time.
Today, the US dollar index fell to nearly 92 points amid an empty economic calendar, ongoing political disputes about Joe Biden's new stimulus package, and in anticipation of the US CPI publication tomorrow. From my viewpoint, the greenback's temporary weakness can be an excuse to open short positions on GBP/USD. The market has already reacted to the fact of easing lockdown measures. Then, traders will shift focus towards jitters between London and Brussels. This problem will resurface in the form of violent riots in Belfast and other towns of Northern Ireland. Such a fundamental background will put pressure on GBP/USD.
In terms of technical analysis, GBP/USD is still holding between the middle and the upper lines of Bollinger Bands and below all lines of Ishimoku indicator, including Kumo cloud. All these factors suggest that the bearish scenario is in the cards. The main downward target is seen at near 1,3640 which is the lower border of Bollinger Bands on the daily chart.
