GBP/USD Forecast: Selling opportunity? Powell may reverse UK GDP-related bounce off double bottom

• GBP/USD has moved higher as UK Q1 GDP beat expectations and amid market calm.
• Fed Chair Powell's speech and fears of a second wave could send the dollar higher.
• Wednesday's four-hour chart is showing a bounce off the double bottom.

"It could have been worse"  – the reaction of market watchers as the UK economy shrank by "only" 5.8% in March and 2% in the first quarter. Gross Domestic Product dropped by the worst since the financial crisis but not below that level. 

The UK entered lockdown only on March 23, at the end of the three-month period, and there are no doubts that the second quarter will be horrible. Nevertheless, the hit to the economy– that probably began ahead of the official shuttering – is so far not the worst-case scenario. 

To mitigate the economic fallout, one of the British government's most successful measures is the furlough scheme – paying workers to stay home and maintaining the links between employers and their employees. Chancellor of the Exchequer Rishi Sunak is set to extend the plan through October as the crisis will likely last for longer.

However, this could cost the UK a ballooning deficit and he is reportedly considering tax hikes and other measures. Announcing such measures could weigh on the economy and sterling. 

The UK is taking its "baby steps" toward returning to normal, after much confusion by Prime Minister Boris Johnson's messages. Nevertheless, UK COVID-19 statistics are encouraging, showing falls in cases even in hard-hit care homes. 

The issue of reopening is closely watched in America. Dr. Anthony Fauci, one of the leading medics on the White House's coronavirus taskforce, has warned that lifting the lockdowns too soon could cause unnecessary death and suffering. His testimony weighed on markets and boosted the safe-haven dollar.

Another depressing factor is the Senate's move to advance a bill punishing China for its management of the crisis. Relations between the world's largest economies remain tense.

On the other hand, Gilead's Remdesivir drug – which has shown some success in helping coronavirus patients – will be produced in rising quantities. Other drugs and vaccines are in the works as well. 

The focus now shifts to Jerome Powell, Chairman of the Federal Reserve, who will speak later in the day. Speculation about setting negative rates – which Fed officials have rejected so far – is mounting amid such pricing by bond markets last week. Moreover, President Donald Trump urged the Fed to take that path. That is one of the topics Powell is set to address. His words will likely rock markets.

See Powell Speech Cheat Sheet: Five things to watch, stocks, dollar implications

Another potential pound mover is Brexit. Talks continue in Brussels with both sides keeping relatively quiet. Does this mean they are making progress or just waiting for the end of the week to accuse each other? Traders will know soon enough. 

GBP/USD Technical Analysis

Pound/dollar has hit 1.2250, creating a double bottom after touching that level in late April. That bullish development is countered by downside momentum on the four-hour chart and by the currency pair setting lower highs and lower lows. Moreover, it is trading below the 50, 100, and 200 Simple Moving Averages and the Relative Strength Index is holding above 30 – outside oversold conditions.

Some support awaits at 1.2270, which was a swing low last week. It is followed by 1.2250 mentioned earlier, and then by 1.2165. 

Resistance is at 1.2310, a temporary trough last week, and then by 1.2375, a high point earlier this week. The SMAs are converging around 1.24, which is the next cap. 

More: Move fast and leverage trades, what to buy low and what to sell high – Interview with Steve Ruffley