GBP/USD Forecast: Rejected at critical confluence and heading lower as coronavirus fears mount

• GBP/USD has surged to around 1.22 amid broad US dollar weakness.
• Concerns about coronavirus and potential profit-taking could send the pound lower.
• Friday's four-hour chart is showing that critical confluence is capping cable. 

Millions of Brits took to the balconies, windows, and doorsteps to cheer health workers – in a tradition seen in Spain, as many fears hospitals will become overwhelmed like in southern Europe. The number of UK Covid-19 mortalities has jumped by over 100 to 578, and cases leaped by some 2,000 to nearly 12,000. The curve has yet to show signs of flattening. 

Imperial College's Neil Ferguson, the man at the forefront of making projections for coronavirus, clarified that the lethality estimates of the disease remain unchanged while its transmissibility is faster than expected. 

Nevertheless, GBP/USD has been on the rise – completing a surge of some 800 pips during the week – driven by US dollar weakness. The greenback has been suffering the Federal Reserve's open-ended Quantitative Easing program and Chairman Jerome Powell's ongoing commitment to support the struggling economy, as reiterated in a rare interview on Thursday. The Fed's massive money printing has soothed markets, pushing funds away from the safe-haven dollar. 

The market mood has been upbeat also due to the Senate's approval of the massive $2 trillion fiscal package. The House is set to begin a debate on the bill on Friday and it will likely turn into law over the weekend. 

The dollar's fall on Thursday was exacerbated by skyrocketing jobless claims – to a historic high of 3.283 million, closer to the upper end of estimates. While some of the unemployment may be temporary, the figures point to a significant halt in economic activity. 

Stock markets seemed to take the labor market figures with a stride on Thursday, but S&P futures are on the back foot on Friday. If the three-day rally comes to a halt, the greenback has room to rise. 

See:

• Three million is only the beginning, three reasons why the dollar may rise
• US labor market reels as initial jobless claims soar far beyond the previous record

The US is also suffering from the rapid spread of coronavirus, with the total number of infections topping 85,000 – reaching the global top. While President Donald Trump wants a quick reopening of the economy, governors – including Republican ones – are imposing lockdowns to stop the spread of the disease. 

GBP/USD's comeback is also a much-needed correction after the currency pair tumbled down, and a response to the British government's efforts to support the economy. Rishi Sunak, Chancellor of the Exchequer, announced a plan to support the self-employed with substantial payments, keeping the economy afloat. 

The University of Michigan's final Consumer Sentiment read for March is set to show another drop later in the day, but virus figures will likely have the upper hand. 

See Consumer Sentiment Preview: Outlook equals consumption

GBP/USD Technical Analysis

GBP/USD has been rejected around 1.23, which is where the daily high converges with the 100 Simple Moving Average. The Relative Strength Index is almost at 70, flirting with overbought conditions. Momentum remains to the upside. The currency pair is trading above the 50 SMA and the 200 SMA. All in all, the picture is mixed.

Support awaits at 1.2130, the daily low, and also a resistance line earlier this month. It is followed by two lines – the round 1.20 level and 1.1970, a swing high from this week. The next lines to watch are 1.18 and 1.1720. 

Resistance above 1.23 awaits at 1.2440, that capped a recovery in mid-March, followed by 1.25, which provided support beforehand. 1.2610 and 1.2710 are next.