GBP/USD bulls capped at 200-DMA, eyes on 20-DMA

• GBP/USD suffers a blow at the 200-DMA as dollar comes back into vogue.
• COVID-19 is keeping markets on the cautionary side, favouring a bid in the US dollar.

Risk mood has shifted to risk-off mid-week with the US benchmarks printing in the red and the US dollar is picking up a bid following a number of bearish sessions and despite worrisome US data. 

Data released this Wednesday showed that the NY Fed Manufacturing Index collapsed to -78.2 and US monthly retail sales falling 8.7% in March as compared to a fall of 8% expected. The extent of economic fallout from the coronavirus pandemic is really starting to shine through now, reminding investors of what could be in store in the months ahead for the global economy. 

• US Retail Sales: The biggest question is when the employment will be restarted

• US Industrial Production: The decline was larger than expected – BMO

The data is reflecting the warnings from the Internation Monetary Fund issuing its latest World Economic Outlook, entitled “The Great Lockdown: Worst Economic Downturn Since the Great Depression”. It projects a 2020 contraction in world growth of -3%, with US -5.9%, Euro Area -7.5%, UK -6.5%, Australia -6.7%, and China +1.2%.

However, the US dollar is likely to be underpinned so far as the markets remain in a defensive footing. The markets were building dollar longs as a key safe-haven in spot-FX in the past few weeks. USD net longs edged higher in last week's data despite the currency coming under pressure in the spot market. Now that the markets have accustomed to the slew of Fed measures aimed at helping offshore USD liquidity, its safe-haven qualities could be coming back into vogue as we are seeing a surge in the DXY today, + 0.62% having travelled from a low of 98.82 to a high of 99.98, despite the poor data. 

Beginning of a significant downturn in the economy

As for the UK, economic matters are no better off there either. Today, Sam Woods, deputy governor of the Bank of England, said on Wednesday that they are at the beginning of a significant downturn in the economy. 

"Banks have enough capital to make government COVID-19 loans, issues are operational bottlenecks," Woods explained. "The government's lending schemes cover about 80% of firms by turnover and employment, hard to get total coverage." More on that here:

•  BoE's Woods: We are at the beginning of a significant downturn

Meanwhile, we are seeing net GBP long positions falling for a fifth straight time from last weeks positioning data as investors fret over the UK’s current account deficit which continues to be a thorn in the side for sterling bulls, exposing GBP to a possible deteriorating economic data. While the market may have been getting long of GBP of late, perhaps fulled by  PM Boris Johnson's improving health condition and supply in the greenback, any re-building of GBP longs will feel the brunt of a potential longer than expected health crisis in the UK (death toll 12%) and dire consequences for the UK economy. 

GBP/USD levels

GBP/USD Price Analysis: Pound rebounds from session lows, trades near 1.2500 figure

As for levels, GBP/USD fell into the bear's hands around the  200-day ma at 1.2650 and eyes are now back on the 20-day ma at 1.2220. A break higher, however, exposes a run to a 78.6% Fibonacci retracement at 1.2817.