GBP/USD Daily Forecast – Stabilization After Yesterday’s Downside Move

GBP/USD Video 22.04.20.

Risk-Off Sentiment Boosted U.S. Dollar

GBP/USD breached the 20 EMA near 1.2400 to the downside and gained rapid downside momentum. The key catalyst for the move was the sell-off in global markets, which was triggered by a major downside move in the oil market.

Today, oil feels no better, and WTI oil prices race towards the $10.00 level while Brent oil prices are barely above $16.00. This situation creates demand for safe haven assets like the U.S. dollar.

The U.S. Dollar Index, which measures the U.S. dollar’s strength against a broad basket of currencies, has firmly settled above the 100 level and continues the upside move.

As I noted yesterday, the volatility in the forex markets has generally decreased, but it may return in case of increased rush to safety.

UK has just published inflation data for March. Inflation Rate was 1.5% year-over-year and 0% month-over-month, in line with the analyst consensus. Core Inflation Rate for March (month-over-month) came below the analyst consensus at 0.1%.

Retail Price Index came at 0.2% compared to analyst expectations of -0.2%. So far, retail prices show positive dynamics, which may be fueled by stockpiling ahead of the lockdown. It’s hard to expect continued increases in prices amid declining demand in April.

Technical Analysis

GBP/USD gained downside momentum after it breached the 20 EMA at 1.2400 and easily went through the minor support level at 1.2350. There was a possibility that the support at 1.2400 will help GBP/USD return to the upside channel but this scenario has not materialized, and the pair entered into a local downtrend.

Currently, the next material support level is located at 1.2170, at the lows of the previous downside move. In case this support is breached to the downside, the pair will head towards 1.2000.

On the upside, the previous support at 1.2400 has become the new resistance for GBP/USD. The minor level at 1.2350 did not prove its strength so it’s hard to expect material resistance in this area.

In case GBP/USD manages to get above the 20 EMA, it will return into a range between the 20 EMA at 1.2400 and the 50 EMA at 1.2470. The breach of the 50 EMA level will open the way to the previous highs at 1.2650.