GBP/USD Analysis: Bulls remain at the mercy of USD price dynamics amid coronavirus crisis

• GBP/USD faced rejection near 200-DMA and witnessed a dramatic turnaround on Wednesday.
• A strong pickup in the USD demand was seen as a key factor behind the overnight sharp slide.
• The pair held weaker below 1.2500 mark on Thursday amid concerns over the coronavirus crisis.

The GBP/USD pair stalled its recent strong positive momentum near the very important 200-day SMA and witnessed a dramatic turnaround from five-week tops on Wednesday. A strong pickup in the US dollar demand, amid a fresh wave of the global risk-aversion trade, turned out to be one of the key factors that prompted some aggressive selling around the major.

Despite the latest optimism over a steady trend down in the new coronavirus cases and deaths across the world, investors remain concerned over the economic fallout from the pandemic. Market worries over an imminent global recession resurfaced after the IMF on Tuesday said that the COVID-19 pandemic could cause the world economy to shrink by 3% in 2020, the biggest collapse since the Great Depression.

The already weaker sentiment deteriorated following the disappointing release of the US economic data, which illustrated the extent of economic damage caused by the COVID-19-induced lockdowns. In fact, the US monthly retail sales plunged 8.7% in March and industrial production recorded the steepest decline since early 1946.

The pair dived nearly 200 pips and refreshed weekly lows, taking along some trading stops near the key 1.2500 psychological mark, albeit managed to find some support at lower levels. A modest bounce in the US equity markets led to some intraday USD pullback from highs and helped ease the bearish pressure. The pair finally settled around 85 pips off daily swing lows but failed to capitalize on the recovery, instead met with some fresh supply during the Asian session on Thursday.

Mounting fears that extended COVID-19-induced lockdowns could lead to a deeper economic slowdown than previously forecasted continued weighing on investors' sentiment and underpinned the greenback's perceived safe-haven demand. The pair held weaker below the 1.2500 mark as market participants now look forward to the BOE’s first-quarter Credit Conditions Survey for a fresh impetus. Later during the early North-American session, the release of the usual weekly jobless claims might further contribute towards producing some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the overnight slump managed to find some support near the 1.2440-35 horizontal zone, which should now act as a key pivotal point for short-term traders. A convincing break through might prompt some aggressive technical selling and turn the pair vulnerable to break below the 1.2400 mark, towards testing the 1.2370-65 support zone. The downward trajectory could further get extended towards the 1.2300 round-figure mark before the pair eventually drops to the next major support near the 1.2240-30 region. 

On the flip side, any meaningful bounce back above the 1.2500 mark now seems to confront some fresh supply near the 1.2540 region. Some follow-through buying has the potential to lift the pair back towards the 1.2600 round-figure mark, above which bulls are likely to make a fresh attempt towards clearing the 200-DMA hurdle near mid-1.2600s.