GBP/USD Forecast: Bearish bias remains, 100-DMA should cap the attempted recovery

• A modest USD pullback prompted some short-covering move around GBP/USD on Monday.
• Sliding US bond yields, a turnaround in the risk sentiment weighed on the safe-haven USD.
• The Fed’s hawkish shifts should limit the downside for the USD and cap gains for the major.

The GBP/USD pair staged a goodish rebound from two-month lows and maintained its bid tone through the first half of the European session on Monday. The pair, for now, seems to have stalled its recent sharp pullback from multi-year tops and was supported by a modest US dollar pullback. As investors digested last week's hawkish FOMC surprise, an extension of the recent decline in the US Treasury bond yields prompted some profit-taking around the buck. Apart from this, a dramatic turnaround in the global risk sentiment – as depicted by a solid intraday bounce in the equity markets – further undermined the greenback's relative safe-haven status.

This, in turn, assisted the pair to move back above mid-1.3800s and has now recovered a part of the previous session's heavy losses. That said, any meaningful positive move still seems elusive amid concerns about the EU-UK collision over Northern Ireland protocol. This, along with worries that the government's decision to delay the final stage of easing lockdown measures could hinder the nascent UK economic recovery, could further act as a headwind for the British pound. Investors might also refrain from placing any aggressive bullish bets, rather prefer to wait for a fresh impetus from the upcoming Bank of England monetary policy meeting on Thursday.

Moreover, the Fed's signal that it might raise interest rates at a much faster pace than anticipated previously should help limit USD decline and further collaborate to cap gains for the major. The Fed last week stunned investors and brought forward its timetable for the first post-pandemic interest rate hikes. The so-called dot plot pointed to two rate hikes by the end of 2023 as against March's projection for no increase until 2024. In the absence of any major market-moving economic releases, this makes it prudent to wait for some strong follow-through buying before confirming that the pair might have bottomed out in the near term.

Short-term technical outlook

From a technical perspective, the intraday recovery from sub-1.3800 levels could be attributed to some short-covering and runs the risk of fizzling out rather quickly. Hence, any subsequent move might still be seen as an opportunity to initiate fresh bearish positions. This should cap the pair near the 100-day SMA, currently around the 1.3935 region. Some follow-through buying has the potential to lift the pair further towards the key 1.4000 psychological mark.

On the flip side, the 1.3800 round figure now becomes a key pivotal point for short-term traders. Sustained weakness below should pave the way for a slide towards the 1.3750-45 horizontal zone. The downward trajectory could further get extended towards the 1.3700 mark before the pair eventually drops to strong support near the 1.3675-70 region, tested in March and April.