GBP/USD Daily Forecast – Support At 1.2250 Holds Well

GBP/USD Video 13.05.20.

UK Economy Contracts Less Than Expected

GBP/USD is rebounding from the major support level at 1.2250 following the release of UK economic data.

First-quarter GDP Growth Rate was -2.0% on a quarter-over-quarter basis compared to analyst consensus of -2.5%. On a year-over-year basis, GDP Growth Rate was -1.6% compared to consensus of -2.1%.

The British economy contracted less than expected which is good news for the pound, although the real hit for the UK economy will come in the second quarter.

Other economic data also exceeded expectations. Construction Output declined by 7.1% in March on a year-over-year basis while analysts expected it to contract by 8.2%.

Industrial Production declined by 8.2% on a year-over-year basis compared to expectations of a 9.3% contraction.

I’d note that while all of the above-mentioned reports contained data which came ahead of expectations, they showed that the UK economy was taking a huge hit from coronavirus.

Anyway, this data may provide some support for the British pound which has been under pressure due to virus fears and uncertainty about the timing of the end of the lockdown measures.

Also, comments from the U.S. President Donald Trump, which pushes the Fed to adopt negative interest rates, may also provide support for GBP/USD.

Technical Analysis

GBP/USD has once again found support above 1.2250. This is a major support level for the pair, and GBP/USD continues to trade in a wide range between 1.2250 and 1.2650.

In case GBP/USD manages to settle below 1.2250, it will likely get significant downside momentum and head towards the next support at 1.2170.

In this case, the pair could transfer from a range-bound mode into a downside mode, and it will have good chances to get below the support at 1.2170. In this scenario, GBP/USD will head towards 1.2000.

On the upside, the nearest resistance level for GBP/USD is at the 20 EMA at 1.2385, followed by resistance at the 50 EMA at 1.2430.

In case GBP/USD manages to get through the above-mentioned resistance area, it will head towards the next resistance level at 1.2500.

The better-than-expected UK economic data may help GBP/USD hold above 1.2250 but the risk is still shifted to the downside as the world markets may start pricing in a slower recovery following yesterday’s comments by Dr. Fauci, who told the U.S. Congress that the coronavirus outbreak was not yet under control.