GBP/USD Forecast: Slide back towards multi-year lows remains a distinct possibility

• GBP/USD nosedived to fresh YTD lows amid a strong pickup in the USD demand.
• UK government's £330 billion package provided a much-needed respite for bulls.

Following the previous day's good two-way price action, the GBP/USD pair witnessed some aggressive selling on Tuesday and nosedived to over six-month lows amid resurgent US dollar demand. As investors looked past the Fed's aggressive policy easing move, a turnaround in the global risk sentiment allowed the US Treasury bond yields to stage a solid rebound. This eventually helped revive the greenback demand, which was further boosted by growing market fears of further USD shortages. On the other hand, the British pound was being weighed down by the UK government's different stance on combating the coronavirus pandemic.

Meanwhile, Tuesday's mixed UK employment details failed to impress bullish traders, rather passed unnoticed amid growing market concerns over the economic fallout from the virus outbreak. The latest UK jobs report showed that the number of unemployed people increased by 17.3K in February, lower than anticipated, and average earnings growth including bonus stood at 3.1$ against 2.9% previous and 3.0% expected. The positive readings, to a larger extent, were negated by an unexpected uptick in the unemployment rate, which rose to 3.9% from 3.8% previous.

The pair plunged nearly 275 pips from daily tops, albeit managed to find some support near the key 1.20 psychological mark after the UK Chancellor Rishi Sunak announced £330 billion stimulus package. The pair finally settled around 50 pips off lows and gained some follow-through traction during the Asian session on Wednesday amid a modest USD pullback. However, the uptick lacked any strong follow-through and runs the risk of fizzling out rather quickly in wake of the UK Prime Minister Boris Johnson's overnight comments, reiterating that the transition period would end as scheduled on December 31st.

Hence, it will be prudent to wait for some strong follow-through buying before confirming that a near-term bottom is already in place and positioning for any further near-term recovery. In absence of any major market-moving economic releases, either from the UK or the US, developments surrounding the coronavirus saga might continue to play a key role in influencing the broader market risk sentiment and produce some meaningful trading opportunities.

Short-term technical outlook

Looking at the technical picture, the recent slump of around 1200 pips from the 1.3200 round-figure mark has been along a short-term descending trend-channel formation on short-term charts. The set-up indicates a well-established bearish trend and hence, any subsequent recovery beyond the 1.2100 mark is likely to confront stiff resistance, rather remain capped near the top end of the mentioned channel, currently near the 1.2175-80 region. That said, a convincing break through might negate prospects for any further downfall and prompt some aggressive near-term short-covering move.

On the flip side, bearish traders are likely to aim for a sustained weakness below the 1.20 mark before positioning for a slide back towards early September 2019 swing lows, around the 1.1960-55 region. The downward trajectory could further get extended towards the 1.1900 round-figure mark en-route the trend-channel support, currently near the 1.1865-60 region.