GBP/USD Forecast: Remains vulnerable to test sub-1.2200 levels

• GBP/USD nosedived to fresh five-month lows on Friday amid stronger USD.
• The Fed’s decision to ease further helped gain some traction on Monday.
• The US central bank slashed interest rates to zero and introduce fresh QE.

The GBP/USD pair remained under some intense selling pressure for the fourth consecutive session on Friday and nosedived to fresh five-month lows. The pair extended its rejection slide from the 1.3200 round-figure mark and tumbled below the 1.2300 round figure mark amid some strong follow-through US dollar strength. As investors digested the Fed's move on Thursday, to inject $1.5 trillion into the financial system, the greenback remained well supported by its status as the world's most liquid currency amid deepening panic about the coronavirus pandemic and was seen as one of the key factors behind the pair's intraday slump.

The pair ended the week with a hefty loss of around 750 pips but managed to gain some positive traction on the first day of a new trading week in reaction to the Fed's emergency decision to slash its benchmark interest rates to zero. The US central bank also announced a fresh round of quantitative easing and pledged to restart buying a total of $700 billion in US Treasuries/mortgage-backed securities to shore up economic growth. The latest announcement triggered a fresh leg down in the US Treasury bond yields and weighed heavily on the USD, which eventually provided some immediate respite to the major.

However, bulls failed to capitalize on the early Asian session positive move to levels beyond the 1.2400 round-figure mark, albeit have still managed to hold the pair comfortably above the 1.2300 mark. Meanwhile, developments surrounding the coronavirus saga might continue to act as an exclusive drive the broader market risk sentiment and infuse some additional volatility in the FX market amid absent relevant market-moving economic releases on Monday.

Short-term technical outlook

From a technical perspective, last week’s downfall below the very important 200-day SMA might have already confirmed a near-term bearish bias. However, slightly oversold conditions on short-term charts might hold investors from placing any aggressive bearish bets and help limit deeper losses, at least for the time being. Hence, it will be prudent to wait for some near-term consolidation or even a possible bounce before traders again start positioning for any further near-term depreciating move.

In the meantime, the 1.2300 round-figure mark now seems to act as immediate support and is followed by Friday’s swing lows, around the 1.2260 region. Some follow-through selling might turn the pair vulnerable to accelerate the slide further towards retesting October 2019 lows, or sub-1.2200 levels. On the flip side, the 1.2400 mark, closely followed by daily tops, around the 1.2420 region might keep a lid on any attempted recovery. Sustained strength beyond the mentioned barriers might prompt some short-covering move and assist the pair to aim back towards reclaiming the key 1.2500 psychological mark.