GBP/USD Daily Forecast – U.S. Dollar Gains Ground As Fed Hints It Won’t Take Interest Rates Into The Negative Territory

GBP/USD Video 12.05.20.

GBP/USD Stays Below The 20 EMA At 1.2400

GBP/USD faced resistance above 1.2400 and pulled back as global markets became worried about a potential second wave of coronavirus and the Fed signaled that it won’t take U.S. interest rates into the negative territory, providing support for the U.S. dollar.

Chicago Fed President Charles Evans stated that rates would stay near zero for quite some time but added that he did not expact that negative interest rates would be a tool that the Fed would use.

These comments boosted the U.S. dollar since the market was already pricing in a probability of negative interest rate policy in the future.

The U.S. Dollar Index, which measures the U.S. dollar strength against a broad basket of currencies, returned back above the 100 level but stays below the key resistance level at 101.

To break through 101, the U.S. dollar will need increased investor appetite for safe haven assets. Such a breakout would be bearish for GBP/USD.

In China, authorities decided to conduct a city-wide coronavirus testing in Wuhan over a period of 10 days. The markets will be watching the results of this test very closely since they will indicate a potential of the second wave of coronavirus after the end of strict lockdown measures.

Technical Analysis

GBP/USD continues to trade in a wide range between the support level at 1.2250 and the resistance level at 1.2650 although the pair has recently settled closer to the low end of this range.

GBP/USD met material resistance in the area between the 20 EMA at 1.2400 and the 50 EMA at 1.2440. This resistance area is a major obstacle on the pair’s way to the upside.

In case GBP/USD manages to settle above this level, it will likely gain additional upside momentum and quickly head to test the next resistance level at 1.2500.

On the support side, the nearest material support level is located at 1.2250. GBP/USD has already tried several times to test this level but the pair got buyer support in the 1.2250 – 1.2300 area.

In case the support at 1.2250 gets breached to the downside, GBP/USD will gain downside momentum and head towards the next support level at 1.2170.