GBP/USD Forecast: Bulls on the defensive amid an extended selloff in equities

The GBP/USD pair lacked any firm directional bias on Thursday and seesawed between tepid gains/minor losses through the early European session, consolidating the previous day's US CPI-inspired losses. A surge in the US consumer prices fueled speculations the Fed will raise rates sooner rather than later. This was evident from a sharp intraday spike in the US Treasury bond yields, which, in turn, triggered aggressive short-covering around the US dollar.

Meanwhile, the yield on the benchmark 10-year US government bond witnessed a modest pullback from the 1.7% threshold. This, in turn, held the USD bulls from placing aggressive bets and extended some support to the major. Apart from this, the upbeat outlook for the UK economic recovery from the pandemic – amid a sharp drop in COVID-19 deaths and new cases – further acted as a tailwind for the British pound and helped limit the downside.

The optimism was reinforced by Wednesday's UK macro releases, which showed that the economy expanded by 2.1% MoM in March as against 1.4% growth anticipated. This was accompanied by an upward revision of the previous month's reading to 0.7% and better-than-expected UK Industrial/Manufacturing Production figures and Goods Trade Balance data. This comes after the UK Prime Minister Boris Johnson on Monday confirmed the next stage of lockdown easing in England.

That said, a shift in Fed rate expectations continued underpinning the greenback. This, along with an extended selloff in the equity markets, further benefitted the USD's relative safe-haven status. This was seen as a key factor that capped the pair amid absent relevant market moving economic releases from the UK. The US economic docket highlights the release of the Initial Weekly Jobless Claims and Producer Price Index later during the early North American session.

Traders will further take cues from the US bond yields and the broader market risk sentiment, which should influence the USD price dynamics and produce some opportunities around the major.

Short-term technical outlook

From a technical perspective, the pair was seen hovering around the 23.6% Fibonacci level of the recent leg up from April monthly swing lows. Some follow-through selling might prompt some additional long-unwinding and accelerate the slide further towards a strong horizontal resistance breakpoint, now turned support near the key 1.4000 psychological mark. This is closely followed by the 38.2% Fibo. level, around the 1.3980-75 region, which if broken decisively will shift the near-term bias in favour of bearish traders.

On the flip side, the daily swing highs, around the 1.4075-80 region now seems to act as an immediate hurdle ahead of the 1.4100 mark. A sustained move beyond will negate any near-term negative bias and allow bulls to aim to reclaim the 1.4200 mark. The upward trajectory could further get extended back towards retesting YTD tops, around the 1.4235 zone touched on February 24.