GBP/USD Forecast: Turning the tide? Liquidity is no cure to coronavirus, Friday may see fresh falls

"We will send coronavirus packing" – UK Prime Minister Boris Johnson continues providing colorful and optimistic words, but that is not the reason for the surge in GBP/USD.

The primary driver is a broad market correction, where all assets are rising against the US dollar – a reversal of the "sell everything mode" seen earlier this week. The Federal Reserve's liquidity injections and expanded dollar swaps have helped markets recover. Distressed selling pushed the greenback higher. 

Sterling is also benefiting from monetary stimulus – contrary to logic in normal times, as these are extraordinary ones. The Bank of England held its second emergency decision on Thursday, this time under Andrew Bailey, the new governor. The BOE announced a rate cut to 0.10% and another £200 billion in new bond-buying, an increase of nearly 50%. Bailey said that the bank needed to act immediately, as fears of a lockdown in the UK had begun causing disorderly market moves. 

The pound reacted positively as support from the central bank – monetary financing if you wish – is needed to provide fiscal stimulus. Chancellor of the Exchequer Rishi Sunak is scheduled to present additional steps to support struggling businesses and workers later in the day after already pledging funds to combat the disease, build infrastructure, and more. The bigger the help, the higher the pound can rise, yet other factors are in play as well.

See Is money printing positive for currencies? Lessons from Lagarde's largesse, Bailey's bailout

Concerns about a downturn in the US have risen after jobless claims increased to 281,000 and as California ordered people to stay at home. Some fear a substantial slump. 

See Is the US already in a recession?

Cable has hit a high of 1.1878 earlier in the day after bottoming out at 1.1409 beforehand – more than 450 pips. In the bigger scheme of things, the currency pair is still substantially down, after hovering above 1.20 earlier this week and 1.32 just 11 days ago. 

At the time of writing, the currency pair is edging lower again amid high volatility. It is essential to remember that a meaningful change – "turning the tide" as the PM said – depends on lockdown measures playing out. And that may take all spring or also the summer. A cure or vaccine could provide a shortcut, but while efforts are immense, that will also take time. 

The UK's restrictions are still far from those in continental Europe and the worst – also to the economy – is still ahead of us. 

Apart from Sunak's new measures, further coronavirus headlines, shutdowns, and policy responses are eyed. The respiratory disease has already taken the lives of over 10,000 people and infected nearly a quarter of a million all over the world. 

GBP/USD Technical Analysis

The Relative Strength Index has risen above the 30 mark on the four-hour chart, moving out of oversold conditions and allowing for new falls. It is still oversold on the daily chart. Momentum remains to the downside and the currency pair is well below the critical Simple Moving Averages.

Some resistance is at the swing high of 1.18 seen on Thursday, followed by Friday's daily high of 1.1878. It is followed by 1.20 and 1.2120.

Support is at 1.17, a round level that temporarily capped cable in recent days. The next round numbers of 1.16 and 1.15 are also of importance ahead of the Wednesday's trough of 1.1440 and the fresh 35-year low of 1.1409. 

More: Coronavirus market turmoil explained: Dollar, stocks, gold, oil, and more