GBP/USD Forecast: Falling UK covid cases, US inflation, could send cable climbing toward 1.40

No milk today – that is what some supermarkets have been hearing, as the "pingdemic" has caused shortages of lorry drivers. The British government is under mounting pressure to alleviate issues related to the calls on hundreds of thousands to remain in self-isolation – and to clarify its policies. 

However, the mess is likely transitory and the good news is that COVID-19 continues its descent in Britain. With over 70% of the population having received at least one vaccine shot, cases are down to near 20,000 daily from a peak of over 50,000. That implies better growth prospects and a stronger pound.

Across the pond, infections are on the rise, with roughly 85,000 Americans testing positive every day, compared with 15,000 in mid-June. The spread of the virus and downbeat economic data have been weighing on sentiment and supporting the safe-haven dollar. 

The ISM Manufacturing Purchasing Managers' Index dropped to 59 points in July, worse than expected and pointing to slower – yet still robust – expansion. On the other hand, the Employment component, which serves as a hint toward Friday's Nonfarm Payrolls, improved.

Moreover, the Prices Paid statistic in the PMI fell off the highs – showing relief in inflationary pressures. That is positive news that could eventually be cheered by investors. Any improvement in sentiment could weigh on the greenback. 

More Inflation, the chip shortage and Delta are peaking, what it means for markets and the dollar

What about Brexit? Lingering issues from the UK's exit remain open, but both sides are now in a truce of sorts, refraining from new action over the Northern Irish protocol. 

Overall, there is room for cable to climb higher.

GBP/USD Technical analysis

Pound/dollar has fallen off the uptrend channel and suffers downside momentum on the four-hour chart. However, it continues trading above the 50, 100 and 200 Simple Moving Averages – and the 50 SMA surpassed the 200 SMA, another bullish sign. 

Some resistance awaits at 1.3930, a high point from early in the week. It is followed by 1.3980, which capped cable twice in late July. Further above 1.4030 and 1.4065 are eyed. 

Support is at the daily low of 1.3875, followed by 1.3850 and then by 1.3760 and 1.3730. All were stepping tones on the way up. 

See Analyzing inter-market correlations to see if reflation trade is coming to an end