GBP/USD Daily Forecast – Prospect Of Negative Rates Puts Pressure On The Pound

GBP/USD Video 18.05.20.

Negative Interest Rates In Spotlight

GBP/USD breached the support level at 1.2170, gained downside momentum and settled closer to 1.2100 as the prospect of negative interest rates put pressure on the British pound.

The Bank of England is evaluating unconventional methods of supporting the economy at times of coronavirus crisis and it can introduce negative interest rates.

Previously, the U.S. Federal Reserve stated that it will not adopt negative rates, so a prospect of negative interest rates in UK puts significant pressure on pound’s dynamics against the U.S. dollar.

The interest rate news are the main driver behind the recent move in GBP/USD. The U.S. dollar is flat against a broad basket of currencies, and the U.S. Dollar Index stays above the 100 level.

The U.S. Dollar Index remains in a range between the 99 level and the 101 level, and a move out of this range will lead to increased momentum. A move above 101 will increase the downside pressure on GBP/USD.

With no important economic releases scheduled for today, GBP/USD trading will depend on technicals and the general market mood. Currently, the market is impacted by the optimism about the reopening of the world economy which is balanced by fears of a second coronavirus wave.

Technical Analysis

GBP/USD has settled below the previous support level at 1.2170. As I wrote in my previous article on GBP/USD, a move below 1.2170 opens the way to the next material support level at 1.2000.

At this point, GBP/USD gained significant downside momentum and has already breached the minor support level at 1.2115. If the downside momentum intensifies, the pair may get to 1.2000 in the following trading sessions, although such a move could require additional downside catalysts.

On the upside, the previous support at 1.2170 became the new resistance level for GBP/USD. The pair may find it hard to immediately return back above this level since it has gained material downside momentum.

In case GBP/USD settles above 1.2170, it will try to get to the next important resistance level at 1.2250. I’d note that RSI shows that GBP/USD is not extremely oversold, so the downside momentum could continue.