GBP/USD Analysis: Remains capped below 1.2500 mark amid fears over an imminent global recession

• GBP/USD had good two-way price swings on Tuesday amid the intraday USD volatility.
• The Fed’s latest move prompted some fresh USD selling and extended some support.
• Concerns over the coronavirus-led recession revived the USD’s safe-haven demand.

The GBP/USD pair witnessed some aggressive selling during the early part of Tuesday's trading session and was being weighed down by a combination of factors. The Fitch downgrading of UK’s sovereign debt rating on Friday continued to take its toll on sterling, which coupled with a goodish pickup in the US dollar demand exerted some heavy downward pressure. Despite the negative factors, the pair once again showed some resilience at lower levels and quickly reversed an early dip to levels below mid-1.2200s.

The British pound found some support from Tuesday's mostly in line or better-than-expected UK macro data, which showed that the UK economic growth remained flat during the fourth quarter of 2019. Meanwhile, business investment for the reported period revised higher to 1.8%. The uptick got an additional boost in the wake of some renewed USD selling that came after the Fed announced a temporary repurchase agreement facility for foreign central banks to support the smooth functioning of the US Treasury markets.

The program will allow participants to temporarily exchange their holdings of the US Treasuries for overnight dollar loans, which can then be made available to institutions in their jurisdictions. The move was distinct from the swap lines with major central banks and comes on the back of the unlimited QE, which prompted some fresh USD selling. Meanwhile, data released from the US showed that the Conference Board's Consumer Confidence Index slumped to 120 in March as compared to 32.6 previous. The reading was slightly better than 110 expected but failed to impress the USD bulls.

The pair climbed back closer to two-week tops set on Friday, albeit lacked any strong follow-through. The market sentiment remained depressed amid mounting fears over the economic fallout from the coronavirus pandemic. The market sentiment remained depressed amid concerns over an imminent global recession, with benefitted the USD's perceived safe-haven status against its British counterpart and prompted some fresh selling on Wednesday. In the absence of any major market-moving economic releases from the UK, developments surrounding the coronavirus saga might continue to provide some impetus. Later during the early North-American session, the release of the US ISM Manufacturing PMI will influence the USD price dynamics and further contribute towards producing some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the pair's inability to capitalize on the move up and repeated failures near the 61.8% Fibonacci level of the .3200-1.1412 steep decline suggests that the recent strong recovery move from 35-year lows might have already run out of the steam. However, the overnight bounce points to persistent buying interest at lower levels and thus, warrant some caution before positioning aggressively for any further near-term depreciating move.

In the meantime, the 1.2300 round-figure mark (50% Fibo.) now seems to protect the immediate downside, which if broken might accelerate the slide back towards the overnight swing low, around the 1.2245-40 region. Some follow-through selling might turn the pair vulnerable to break below the 1.2200 mark and aim towards testing sub-1.2100 level (38.2% Fibo.).

On the flip side, momentum back above the 1.2420 region might continue to confront some fresh supply ahead of the key 1.2500 psychological mark. A sustained strength beyond the mentioned handle now seems to pave the way for an extension of the recent recovery move further towards the 1.2600 round-figure mark. The momentum could further get extended beyond the 1.2625 intermediate resistance, towards challenging the very important 200-day SMA near the 1.2675 region.