GBP/USD Forecast: Comeback on coronavirus fears? Carney, Brexit may send sterling down

Coronavirus may be a double-edged sword for GBP/USD bulls – while it rides higher on expectations for the Fed to cut rates, it has room to fall as the disease hits closer to home. And there's always Brexit. 

Fear in financial markets about respiratory disease is reaching elevated levels. US stocks are already 10% down from the highs and bond markets are pricing an imminent rate cut in the US in March – they pointed to September only one week ago. Investors are flocking to the safety of American debt markets. The growing odds that the Federal Reserve cuts rates are weighing heavily on the dollar.

Coronavirus related headlines are coming fast and thick. Nigeria reported the first case in sub-Saharan Africa, where health systems are less efficient than in other places. The US is ramping up its tests – and that may lead to additional confirmations. While China is trying to get back normal, the global spread is causing panic.

In the UK, authorities have confirmed a total of 19 people infected – including two potentially from London, according to the Daily Telegraph. The spread of the illness to one of the world's financial capitals could wreak havoc. That is one of the reasons that coronavirus may eventually hit the pound. 

And not only the Fed is set to cut interest rates. Mark Carney, the outgoing Governor of the Bank of England, has said that the institution will likely need o to downgrade its growth forecasts. His words may lay the ground for a rate cut in the UK – a decision left to Andrew Bailey, his successor. That curbs any sterling gains.

Brexit is back

UK Prime Minister Boris Johnson and his government adopted a tough stance ahead of talks with the EU on post-Brexit arrangements, due on Monday. Britain may walk out of talks if not enough progress is made by June. Moreover, London braces for a return to World Trade Organization rules – unfavorable commerce conditions for businesses. 

Chief EU NEgotiator Michel Barnier – who previously sought to soften his tone – has yet to respond. Both sides disagree on following EU rules once the transition period expires at year-end. The UK left the bloc in January but retains most rights and obligations during this implementation period. 

Further headlines may impact the pound. 

Overall, coronavirus developments are set to continue dominating trading with occasional other news.

GBP/USD Technical Analysis

Pound/dollar remains under pressure after breaking below uptrend support. Moreover, it is capped by the 50, 100, and 200 Simple Moving Averages on the four-hour chart, suffers from downside momentum – and is outside oversold conditions. The Relative Strength Index is above 30. 

Support awaits at the recent low of 1.2860, closely followed by 1.2850 – the 2020 low. Further down, 1.2775 and 1.27 await it.

Resistance is at 1.2920, followed by 1.2945, 1.2980, and 1.3020 – all were stepping stones on the way down.