GBP/USD Forecast: 200-day SMA, around 1.2100 mark holds the key for bulls

The GBP/USD pair defends a technically significant 200-day SMA support and attracts some buyers on the first day of a new week. The pair, for now, seems to have stalled its recent pullback from a six-month top and snapped a two-day losing streak. Signs of stability in the equity markets undermine the safe-haven US Dollar, which, in turn, is seen offering some support to the major. That said, any meaningful upside for the pair seems elusive, warranting caution for aggressive bullish traders.

Despite the easing of strict COVID-19 restrictions in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukraine war, has been fueling worries about a deeper global economic downturn, which should keep a lid on any optimism. Apart from this, a more hawkish commentary by the Fed last week supports prospects for the emergence of some USD dip-buying, which could further contribute to capping the GBP/USD pair.

In fact, the US central bank stated that it will continue to raise interest rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This leads to an uptick in the US Treasury bond yields and favours the USD bulls. Furthermore, a dovish outcome from the Bank of England meeting, with two MPC members voting to keep interest rates unchanged, could undermine the GBP amid looming recession risks and act as a headwind for the GBP/USD pair.

There isn't any major market-moving economic data due for release on Monday, either from the UK or the US, leaving the GBP/USD pair at the mercy of the USD price dynamics. Hence, traders will take cues from the US bond yields, which, along with the broader risk sentiment, will drive the USD demand. This, in turn, should provide some impetus to the GBP/USD pair and allow traders to grab short-term opportunities.

Technical Outlook

From a technical perspective, Friday's swing low, around the 1.2120 area, now seems to protect the immediate downside ahead of the very important 200-day SMA, currently near the 1.2095-1.2090 zone. The latter should act as a strong base, which if broken decisively will shift the near-term bias in favour of bearish traders. The GBP/USD pair might then accelerate the corrective decline towards the 1.2000 psychological mark before eventually dropping to the 1.1955-1.1945 region. The next relevant support is pegged near the 1.1900 round figure. Failure to defend the said support levels will suggest that spot prices have formed a near-term top and pave the way for deeper losses.

On the flip side, the Asian session swing high, around the 1.2200 level, seems to act as an immediate barrier, above which the GBP/USD pair could climb to the 1.2235-1.2265 congestion zone. The momentum could get extended and lift spot prices to the 1.2300 mark. Some follow-through buying will suggest that the corrective pullback has run its course and allow bullish traders to aim back to reclaim the 1.2400 round figure.