GBPUSD hits key resistance as UK braces for China wrath

Summary:
• The GBPUSD pair hits a key resistance level as traders reacted to the growing tensions between China and the UK because of 5G issues.

The GBPUSD pair is up by more than 0.20% as traders downplay the rising tensions between the UK and China. The pair is trading at 1.2591, which is the highest it has been since July 16. Meanwhile, the US dollar index is down by 0.10%.

UK tensions with China rises

The GBPUSD pair is gaining even as the tensions between the UK and China rises. The tensions have mostly been about the recent decision by the UK to prevent Huawei, the giant technology firm, from taking part in the country’s 5G initiatives.

In response, the Chinese government is said to be crafting measures to hit the UK. As I wrote earlier, these measures include punishing UK firms that are doing business in China, reducing investments in the UK, and implementing policies to make the yuan more influential in the country.

Meanwhile, the UK too is bracing for war with the Chinese. In a statement, Dominic Raab said that the UK was prepared to dramatically shift its relationship with China and the communist party. For example, the country is expected to suspend its extradition treaty with Hong Kong after the party passed the controversial security law. Also, the country is prepared to implement more measures because of the human rights abuses in Xinjian.

A trade war between China and the UK would be damaging for the UK. That is because the UK sells goods worth more than $30 billion to China every year and its companies are prominent in the Chinese economy. While China sells more goods to the UK, the UK plays a smaller role to its economy. It would also be damaging because the UK is currently going through a bitter divorce with the EU.

GBPUSD technical outlook

The GBPUSD pair is trading at 1.2590, which is its highest level since Thursday. The price is a few pips below the 61.8% Fibonacci retracement level. I drew this retracement by connecting the highest point on June 10 and the lowest level on June 29.

Also, the price is above the 100-day 50-day exponential moving averages. The price also tested the descending trend line that is shown in green. Therefore, a break above the resistance at 1.2600 will see the upward continue to move higher.

On the other hand, a move below 1.2557 will invalidate this trend. This price is along the 50-day EMA.

GBPUSD forecast