GBP/USD Daily Forecast – Sterling Tumbles, Five-Month Lows in Sight

The Bank of England delivered an emergency 50 basis point rate cut yesterday and introduced several schemes aimed at ensuring that capital gets into the hands of those that need it the most during this time.

The UK followed the monetary policy easing efforts with fiscal measures as the budget revealed 30 billion pounds worth of fiscal stimulus. Five billion from the total amount will be for the NHS to assist in the rising Coronavirus cases.

Chancellor Rishi Sunak commented that he believed it was the largest fiscal stimulus package that any country has delivered in efforts to combat the virus at this point.

Stock markets around the globe were seen falling sharply in early European trading on Thursday after the WHO said the Coronavirus crisis is now a “pandemic”. The FTSE 100 was down just over 5% shortly after the open and touched lows not seen in over seven years. The S&P 500 was down by a similar amount in pre-market trading and has nearly wiped out the gains from 2019.

Technical Analysis

GBP/USD reversed lowered after a failed break above a declining trend channel early in the week. The pair is now seen testing the same support level that held it higher in early March and is near the lower bound of the same trend channel.

The downside momentum hints of a bearish break, in line with the trend seen since shortly after the UK election. The 1.2750 level will be important in the session ahead.

To the upside, near-term resistance is found at 1.2826.

A downside break of 1.2700 could lead to an acceleration to the downside. The exchange rate is already trading with larger than usual volatility, but considering the current state of the markets, such a scenario cannot be ruled out.

Bottom Line

• GBP/USD has wiped out last week’s gain and is sending a strong bearish signal.
• Critical support is found at 1.2750 followed by 1.2700.