GBP/USD set to trend higher, stronger pound weighs on easyJet shares

Sterling continues to gain ground on the US dollar, but a stronger pound is weighing on easyJet shares and the FTSE 100 more broadly.

  • easyJet shares tumble amid stronger pound
  • Technical analysis suggests GBP/USD will trend higher
  • Stronger pound weighs on FTSE 100 index

The pound once again made headway against the US dollar on Tuesday, but a strong pound is weighing on easyJet shares and the FTSE 100 more broadly, with the blue-chip index extending losses on Tuesday.

The low-cost airline continues to struggle amid ever-changing travel restrictions due to the coronavirus pandemic, with the company’s share price dragged lower after its flights to Portugal surged in price after the UK threatened to add it to its ever-growing quarantine list.

Flights from London airports to major destinations throughout Portugal cost less than £20 earlier in August, with the budget airline offering discounts in celebration of the country being awarded an ‘air-bridge’ by UK authorities.

But 12 days later, ticket prices for flights to Portugal skyrocketed above £300 after the UK government did a complete 180 and reintroduced a two-week quarantine restriction for all British travellers returning from the country.

The FTSE 100 closed 1.7% lower on Tuesday at 5862 points, while easyJet shares fell 4.7% to 603p per share.

FTSE 100 firmly on the back foot

After declining throughout last week, the FTSE 100 finds itself back at the 5950 area that marked support at the end of July, according to Chris Beauchamp, chief market analyst at IG.

‘This rather critical area has seen buyers step up in the past, but a close below 5900 would likely open the way to more downside, with 5727 and 5497 as first-line targets,’ he said.

‘The past five sessions have seen a series of higher lows on the intraday chart, and until that changes, perhaps with a move above 5980 then the overall bearish impression remains in place.’

Brexit fears doing little to dent GBP sentiment

Brexit talks have provided little reason for optimism after yet another failed round of talks between the UK and EU.

With just four-months until the transitional period is over, the chance of an all-encompassing trade deal between the two sides appears less likely by the day.

Nevertheless, the depressed nature of the pound means that there is likely to be long-term value, which is already being realized despite the ongoing economic worries

GBP/USD: technical analysis

GBP/USD has similarly been on the rise, with the price trading at eight-month highs, according to Josh Mahony, senior market analyst at IG.

‘Crucially, we are approaching the critical $1.3515 resistance level, where a break above that point would bring about a two-year high,’ he said.

‘With the price back at trendline resistance, we could see some weakness come into play over the short term,’ Mahony added. ‘However, whether we see a short-term pullback or not, a bullish outlook is in play unless the price breaks below the $1.3356 swing low.’

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