GBP/USD Forecast: Bulls need to surpass 1.3950 to get out of the woods, why it is unlikely

GBP/USD has been recovering as the US dollar retreats alongside yields.
Biden's stimulus and an upcoming US auction will likely send the dollar back up.
Tuesday's four-hour chart is showing bears are still in the lead.

Yohay Elam FXStreet

The royals have more damage control to do than GBP/USD bulls, who are able to lift their heads by staging a recovery. However, like the monarchy, the troubles are probably not over.

Cable has been benefiting from the dollar's descent. China intervened in markets to push bolster stocks and the ensuing risk-on mood is weighing on the safe-haven dollar. More importantly, investors are buying US bonds at lower prices, and the resulting fall in yields is pushing the greenback down as well.

Can this continue? The US House of Representatives is on course to pass the Senate's version of the covid relief bill – worth around $1.9 trillion. President Joe Biden will then sign it into law, launching vast government expenditure that means more debt issuance and potentially rising returns on Treasuries.

The US is auctioning three-year bonds on Tuesday and ten-year Treasuries on Wednesday – with the latter closely followed by markets. A higher return may trigger the next leg up for the greenback and end the current calm.

Sterling has been able to put up a fight – better than the euro's – thanks to Britain's vaccination campaign and also relatively hawkish comments from the Bank of England. Governor Andrew Bailey reiterated that negative rates are basically off the agenda.

All in all, while the pound has weathered the storm better than other currencies, it is far from immune to the next dollar surge.

GBP/USD Technical Analysis

Bulls are eyeing 1.3950, which is where the 100 Simple Moving Average hits has been converging with the price in recent days – and it also capped cable in mid-February. By reaching 1.3950, momentum would likely turn positive. At the moment, it is still to the downside and GBP/USD trades below the 50 SMA and only above the 200 SMA.

Immediate resistance awaits at 1.39, followed by 1.3915, where the 50 SMA hits the price. Beyond 1.3950, the recent high of 1.4015 is the next level to watch.

Some support is at 1.3825, which provided support in mid-February, and then at 1.3775 and 1.3745.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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