21.05.202009:09 Forex Analysis & Reviews: Positivity in the market outweighs threat of the second wave of the pandemic (decline in GBP/USD pair is expected to continue)

Judging by what is happening in the currency markets, it can be said that investors are increasingly focused on the way out of the countries of Europe and the United States, as well as economically strong countries of Asia, led by China, from the pandemic crisis.

Markets are clearly starting to ignore the "threats" from WHO (World Health Organization), which has persistently reported a high probability of a second wave of the COVID-19 pandemic. It can be recalled that it was these intimidations from WHO that slowed down the growth of demand from investors for risky assets earlier this month. This has led to an appreciation of the US dollar as a safe haven in extreme and critical situations in the world.

However, despite the outweighing of common sense towards understanding that the problem of the coronavirus will eventually go away, it is too early to talk about a complete change of mood in the markets. We believe that the positive attitude will still be replaced by negative sentiments, but it will more and more outweigh, which ultimately will cause increased demand for shares of companies, which is fundamentally supported by radical measures of support from the economically leading countries of the world. The weakening of the influence of the theme COVID-19 will definitely lead to a strong increase in the value of stocks of companies, the strengthening of upward dynamics in the commodity market, and will also stimulate a more noticeable depreciation of the dollar in the currency markets.

It is believed that the main beneficiaries of this process will be primarily the commodity currencies - the Canadian and Australian dollars, as well as the Norwegian krone. As for the dynamics of the euro and pound, despite the support measures taken and the proposal to create a 500 billion recovery fund, it will be difficult for the euro to grow steadily against the dollar due to large-scale internal problems. Regarding the pound, it can be noted that the restoration of Brexit's topic will prevent it from increasing, since the uncertainty factor around the process of the final divorce of the EU and Great Britain will dominate it.

More recently, many believed what should be expected after a sharp increase in April, a marked drop in demand for risky assets. In March, as now, we believe that this is a mistaken opinion. The very nature of the pandemic crisis has specific properties and bears signs of more external negative impact (COVID-19) with existing internal (weak recovery of the world economy after the crisis of 2008-09) problems, but not critical. Therefore, the disappearance of an external factor in the wake of unprecedented incentive measures will certainly bring a restorative effect in the global economy and financial markets. But what comes next is, as they say, is something that will have to be seen.

Forecast of the day:

The GBP/USD pair is under pressure on the wave of Brexit's recovery and the weakness of the British economy amid COVID-19, which may push the Bank of England to resume lowering interest rates, possibly even to a negative zone. We believe that while the pair is below the level of 1.2215, it will continue to decline to 1.2160, and then to 1.2075.