GBP/USD Forecast: Can sterling recover? Upbeat UK data may counter dollar domination

Breaking out of range is hard – GBP/USD has reverted back to the middle of the 1.3670-1.4010 range, as the safe-haven dollar attracted fresh flows amid new fears on several fronts, while upbeat UK data keeps sterling bid. 

British Retail Sales surged by 5.4% in March, more than triple the early expectations and on top of upward revisions. Year on year, the increase is 7.2%. UK shoppers have been out and about after several restrictions were lifted in early March. That allows the pound to recover. 

Markit's preliminary Purchasing Managers' Indexes for March are eyed later in the day, with figures for both the services and manufacturing sectors set to remain robust. 

Beforehand, the main upside driver for the greenback has come from the White House. While the general media focuses on President Joe Biden's climate commitments, the administration's intent to raise taxes on capital gains for high-earners has rattled markets. The S&P 500 Index dropped nearly 1% and investors sought the safety of the greenback.

Investors are also concerned about India's worsening covid situation after the nation hit yet a new infections record of over 330,000. The UK's travel ban on flights from the large south-Asian nation has come into effect and worries about global growth are weighing on sentiment. 

The dollar also has positive reasons to rise. For the second week in a row, jobless claims hit a new bottom, this time 547,000, the lowest since March 2020. The focus is now Markit's preliminary PMIs, which is set to remain on high ground. 

Where next for cable? The currency pair is unlikely to stay in the middle of the range for too long. While sterling is fighting back, the dollar may return to dominate on Friday, as some traders may want to exit positions ahead of the weekend.

GBP/USD Technical Analysis

Pound/dollar is fighting to hold onto the 50 Simple Moving Average on the four-hour chart, which is just above the 100 and 200 SMAs. Momentum has turned to the downside, signaling that bears are gaining ground. Overall, the picture is mixed, but the downside looks more appealing.

Support awaits at the daily low of 1.3820, followed closely by 1.38, which capped GBP/USD earlier this month. Further down, 1.3750, 1.3720 and 1.3670 are eyed.

Some resistance is at 1.3860, the daily high, followed by 1.3885, a swing low from Thursday. Higher above, 1.3950 and 1.4010 are the next levels to watch.