GBP/USD Forecast: Bulls are likely to remain interested as long as 1.2140 holds

GBP/USD has staged a technical correction and declined toward 1.2150 after having reached its highest level in nearly three weeks at 1.2212 on Monday. The pair's bullish bias stays intact early Tuesday but near-term gains could remain limited unless the market mood improves. 

The broad-based selling pressure surrounding the US Dollar on Monday allowed GBP/USD to build on Friday's gains. After the data from the US showed softening price pressures in the service sector alongside a lower-than-expected increase in wage inflation, markets started to price in a 25 basis points Fed rate hike in February, triggering a US Dollar selloff.

Early Tuesday, the cautious risk stance makes it difficult for GBP/USD to regather bullish momentum. In the absence of high-tier data releases from the US, the risk perception is likely to influence the US Dollar's valuation and the pair's action.

At the time of press, the UK's FTSE 100 Index was down 0.2% on the day and US stock index futures were losing between 0.1% and 0.3%. 

Meanwhile, several Fed policymakers pushed back against market optimism about a Fed policy pivot late Monday. Atlanta Fed President Raphael Bostic noted that the US economy could absorb further policy tightening. Additionally, "December wage data was one month of data, we can't declare victory," said San Francisco Fed President Mary Daly.

In case Fed policymakers stick to hawkish commentary, US Dollar could show some resilience against its major rivals.

GBP/USD Technical Analysis

GBP/USD holds above 1.2140, where the Fibonacci 50% retracement of the latest downtrend and the 200-period Simple Moving Average (SMA) on the four-hour chart are located. As long as this level stays intact, the pair could test 1.2200 (psychological level, static level) once again and target 1.2240 (December 19 high) and 1.2300 (psychological level, static level).

On the other hand, a four-hour close below 1.2140 could attract sellers and open the door for an extended slide toward 1.2100 (psychological level, static level) and 1.2070 (100-period SMA, Fibonacci 38.2% retracement).