GBP/USD Forecast: Herd selling due to herd-immunity? Probably not and charts point to a bounce

The UK wants to isolate people over 70 – more vulnerable to coronavirus – but to let the disease spread. The idea is called "herd immunity" and assumes that if most of the population is infected and become immune, it provides protection for those who are not immune. That is the short version of Britain's controversial means of fighting the disease – contrary to the social distancing measures used by other countries, that are closing schools, public gatherings, and even movement.

"Herds" of investors flocked out of GBP/USD on Friday and the pressure continues on Monday – yet it is mostly due to dollar demand. The sell-off in markets, related to the economic fallout from the illness has threatened to morph into a financial crisis, with distressed funds forced to flee to the dollar. 

The situation became so severe that the Federal Reserve could not wait until its scheduled meeting on Wednesday. Ahead of the open in Asia, it announced a swap mechanism to ease pressure on the greenback with five central banks. That move came on top of another unscheduled rate cut, this time by 100 basis points and all the way to zero. To top it off, the Fed announced a $700 billion Quantitative Easing program.

The Fed's panic move, after a previous rate cut, earlier liquidity injections, and surprise moves from other central banks, somewhat weakened the dollar but failed to alleviate the selling of stocks and the greenback may have room to rise. 

See Fed Cut Quick Analysis: Panic move exposes financial system's vulnerability, USD buying opportunity?

Investors are worried about the UK's measures – which have less economic impact but are questioned by the World Health Organization – and about a potential global recession. At the time of writing, equities are reeling once again. 

Most economic indicators are for the pre-crisis era, yet devastating Chinese figures for January and February are showing where the world is going. 

In the UK, Brexit talks are suspended and seem to belong to the bygone era but the government's massive fiscal stimulus plan – coordinated with the central bank and backed by the opposition – should eventually help the pound stand out. At the moment, the dollar is king and coronavirus headlines dominate.

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart is below 30 – indicating oversold conditions and a potential bounce. On the other hand, momentum is pointing down and GBP/USD is well below the 50, 100, and 200 Simple Moving Averages. 

Some support awaits at the daily low of 1.2258, followed by 1.22, a low point in October. Next, 1.2115 and 1.20 are noteworthy. 

Resistance awaits at 1.2370, a temporary cap, and then by 1.2425, the daily high. Next, we find 125, a round number, followed by 1.2610.