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GBP/USD Forecast: Fall below 1.2200 mark remains a distinct possibility

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  • A combination of factors prompted some fresh selling around GBP/USD on Monday.
  • Reports of a split on Johnson's coronavirus strategy took its toll on the British pound.
  • The USD was back in demand amid fears about the second wave of virus infections.
  • Negative Fed rate speculations capped the USD and helped limit losses for the pair.

The GBP/USD pair continued with its struggle to sustain or build on the momentum beyond the 1.2400 mark and witnessed some heavy selling on the first day of a new trading week. The UK Prime Minister Boris Johnson's address about the government’s plan to ease the nationwide lockdown lacked clarity and kept the GBP bulls on the defensive. Adding to this, resurgent US dollar demand further exerted some bearish pressure on the major. As investors looked past Friday's dismal US jobs report, the US dollar was back in demand on the back of growing fears about the second wave of coronavirus infections and got an additional boost from a goodish pickup in the US Treasury bond yields.

On the other hand, the British pound was also weighed down by reports that Johnson was facing Cabinet splits over his move to quarantine all travellers coming to the UK for 14 days. This coupled with the lack of progress in the post-Brexit talks further took its toll on the sterling and dragged the pair back below the 1.2300 round-figure mark. However, speculations that the Fed might be forced to push interest rates below zero kept a lid on any runaway USD rally and helped limit deeper losses for the major. The pair once again showed some resilience below the 1.2300 mark and finally settled around 50 pips off daily lows, though lacked any follow-through despite a subdued USD demand during the Asian session on Tuesday.

In the absence of any major market-moving economic releases from the UK, the pair remains at the mercy of the USD price dynamics and any fresh Brexit-related headlines. Later during the early North-American session, the release of the US consumer inflation figures and scheduled speeches by influential FOMC members will influence the USD demand and produce some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the near-term bias still seems tilted in favour of bearish traders amid the formation of a double-top pattern near the very important 200-day SMA. A sustained breakthrough the 1.2300 mark, leading to a subsequent fall below last Thursday’s swing low near the 1.2265 region will reinforce the bearish outlook. The pair might then accelerate the slide towards the 1.2200 mark before eventually dropping to test April monthly swing lows, around the 1.2165 region.

On the flip side, any meaningful recovery attempt might still be seen as a selling opportunity and seems more likely to remain capped near the 1.2400-1.2420 supply zone. This is followed by last Friday’s swing high, around the 1.2465 zone, above which the pair is likely to aim towards reclaiming the key 1.2500 psychological mark.

GBP/USD Forecast: Fall below 1.2200 mark remains a distinct possibility

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