GBP/USD Forecast: Failure to recapture critical support pointing to further losses after BOE blow

Dead cat bounce – that familiar pattern where a financial asset picks up from the floor but does not go very far – best describes the cable's behavior. It also resonates with UK Retail Sales figures for May, which showed a leap of 12% – nearly double the expectations – but still down over 13% yearly. 

The economy is rebounding but may still stabilize at lower levels – a phenomenon seen also in the US. Initial jobless claims stopped their decline and stabilized at 1.5 million last week while continuing claims consolidated around 20 million according to data for the previous seven days. 

Sterling's biggest blow came from the Bank of England. The "Old Lady" settled for an increase of £100 billion in its bond-buying scheme, and hinted it is slowing down the pace of purchases. Less support from the BOE means fewer funds for the government to spend and provide relief in times of trouble. Moreover, one dissenter that opposed the expansion also weighed on the pound.

See BOE Quick Analysis: Three reasons to sell sterling as Bailey seems burned out

Prime Minister Boris Johnson has come under fresh criticism after abandoning plans to use a proprietary contact tracing application but rather technology developed by Google and Apple. The issue joins a long list of troubles as coronavirus cases and deaths remain at higher levels than European peers. The slow pace of exiting the lockdown is another downer. 

US COVID-19 hospitalizations and infections continue rising in the Sun Belt, yet the pace is not as alarming as beforehand and markets seem calmer. Nevertheless, a rally planned by President Donald Trump in Oklahoma may turn into a "super-spreader" event according to some.

Rival Joe Biden is leading Trump by 12 points according to a poll by Fox News. Mishandling coronavirus and protests against racial discrimination are weighing on the president's approval rating as the race to the White House accelerates.

Jerome Powell, who has cautioned that the recovery could be slow, will speak for the third time this week, late on Friday. He will likely repeat the same messages. Volatility will likely be more driven by Wall Street's "quadruple witching" – expiry of four different types of options which tends to trigger price action. 

More Coronavirus comeback or economic re-emergence, Which narrative will carry the day?

All in all, pound/dollar is reaching the end of the week on the back foot.

GBP/USD Technical Analysis

The 1.2460 is proving a strong separator of ranges – it provided support early in the week and now caps any gains. Without overcoming that line, GBP/USD suffers further falls. Momentum on the four-hour chart is to the downside and the Relative Strength Index is above 30 – outside oversold conditions.

Cable is struggling to hold onto the 200 Simple Moving Average and falling below it would also trigger further losses. 

Support awaits at 1.2405, the daily low, followed by 1.2360, which was a resistance line in late May. The next lines are 1.23 and .12250.

Resistance above 1.2460 awaits at 1.25, which provided support this week, and 1.2560, a resistance line before the recent fall.