GBP/USD Forecast: Brexit fears may kill coronavirus-driven break above downtrend resistance

• GBP/USD has advanced as the dollar responds negatively to coronavirus fears.
• Pessimism around Brexit is limiting sterling's gains.
• Friday's four-hour chart is pointing to a breakout above downtrend resistance but overbought conditions.

Coronavirus's fear factor is stronger than Brexit – that explains the rise of pound/dollar as investors grapple with the dual fears. However, that may change.

The spread of the respiratory disease in the US – as thousands are quarantined in New York – is weighing on markets. Money is flying into the safety of American treasuries, pushing yields lower and sending the dollar down. Vice President Mike Pence acknowledged that America is behind on testing kits for the virus.

Moreover, one day after California declared a state of emergency, reports came out that a ship carrying 2,000 people is stranded off the shores of San Francisco due to infections. 

In the UK, while infections at HSBC offices have caused a scare among financial service workers, the number of overall cases is relatively limited. Moreover, the Bank of England has reiterated that it is ready to act but seems calmer than the Federal Reserve. Both outgoing Governor Mark Carney and successor Andrew Bailey are in no rush to slash rates in emergency meetings like the Fed did on Tuesday.

On the other hand, the tone in Brexit talks has worsened once again. Michel Barnier, Chief EU Negotiator, said many difficult issues remain and he also expressed pessimism about striking a deal by year-end. Earlier this week, both sides sounded more upbeat. 

Later in the day, investors will take a break from both issues and will respond to the US Non-Farm Payrolls figures. The data for February is set to be upbeat, showing a gain of 175,000 jobs and a minor deceleration of wage growth to 3%. It will probably take several months for America's labor market to react to the virus.

See:

• US Non-Farm Payrolls February Preview: The first facts
• Non-Farm Payrolls: Greenback comeback or cementing a second double Fed cut? Three scenarios

Which force will have the upper hand moving forward? Events are unfolding rapidly, yet the pair's rally may be prone to correction.

GBP/USD Technical Analysis

Pound/dollar has topped a downtrend resistance line stretching from the peak of 1.3070 in mid-February. The break has not been confirmed yet. Other bullish signs include surging above the 50, 100, and 200 Simple Moving Averages on the four-hour chart and benefiting from upside momentum. 

On the other hand, the Relative Strength Index is above 70 – indicating overbought conditions – and implying a downside correction.

Support awaits at 1.2945, which was a stepping stone on the way down in late February. It is followed by 1.2920, another temporary high in early March. 1.2860, 1.2820 and 1.2770 are next. 

Resistance is at 1.3020, a high point in late February. It is followed by 1.3070 mentioned earlier and then by 1.3110 and a.1.3175.