GBP/USD Forecast: Turning bearish again, UK’s first post-Brexit budget in focus

• GBP/USD witnessed some aggressive selling and tumbled nearly 250 pips on Tuesday.
• Optimism over Trump's proposed economic stimulus package led to a solid USD rebound.
• The set-up seems to have shifted back in favour of bears ahead of the UK annual budget.

The GBP/USD pair witnessed a dramatic turnaround on Tuesday and tumbled nearly 250 pips intraday amid resurgent US dollar demand. Hopes of fiscal stimulus by the Trump administration provided a strong boost to the global risk sentiment and the same was evident from a strong rally in the US equity markets. This allowed the US Treasury bond yields to rebound sharply from historic lows and underpinned the USD demand, which eventually turned out to be one of the key factors that led to the pair's steep decline on Tuesday.

This comes on the back of persistent uncertainty over the UK-EU future relationship post-Brexit and prompted some aggressive long-unwinding trade. The pair extended the previous session's rejection slide from the 1.3200 round figure mark and dropped to levels below the 1.2900 round-figure mark, erasing a major of the gains recorded over the past three trading session. However, the US President Donald Trump delayed the release of an economic stimulus package, which coupled with nervousness over the coronavirus epidemic kept a lid on any strong follow-through gains for the greenback.

Investors' anxiety was evident from a fresh leg down in the US equity futures and the US bond yields, which kept the USD bulls on the defensive and assisted the pair to gain some positive traction during the Asian session on Wednesday. The pair was last seen trading comfortably above the 1.2900 mark as investors now look forward to the UK Chancellor of the Exchequer Rishi Sunak's first budget. Sunak is expected to abandon the austerity policies of previous governments and raise expenditure on infrastructure. Any extraordinary relief on the back of the coronavirus outbreak might ease pressure on the Bank of England to ease further and might act as a positive trigger for the British pound.

Later during the early North-American session, the release of the latest US consumer inflation figures will also be looked upon for some impetus. The headline CPI is expected to have edged lower to 2.2% YoY rate in February as compared to 2.5% previous. This followed by the US Treasury Secretary Steven Mnuchin's testimony on the Proposed Fiscal Year 2021 Budget should play a key role in influencing the USD price dynamics and produce some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the pair’s inability to find acceptance above a 2-1/2-month-old descending trend-line and a subsequent fall below the key 1.30 psychological mark point to the emergence of some fresh selling pressure. The mentioned handle coincides with the 50-day SMA pivotal point and should now act as immediate strong resistance. Some follow-through buying has the potential to lift the pair further, albeit the positive move seems more likely to remain capped near the said trend-line resistance, currently near the 1.3100 round-figure mark.

On the flip side, weakness back below the 1.2900 mark now seems to find some support near the 1.2865-55 region. A sustained break through would turn the pair vulnerable to break below the 1.2800 mark and set the stage for a fall back towards challenging YTD lows, around the 1.2725 region.