GBP/USD Forecast: Only a gasp of air before losing 1.36? Why bears may take back control

Fresh energy on Monday morning? Pound bulls may find the dollar's decline cheerful, but it may be insufficient to lift GBP/USD back its pre-crash highs. The current move could turn into a mere "dead-cat bounce." 

The greenback is giving back ground as investors reassess the chances that the Federal Reserve announces it is tapering down its bond-buying scheme next month. Dallas Fed President Robert Kaplan – who had previously urged withdrawing stimulus– said that the spread of the Delta covid variant may lead him to change his views. When a hawk turns dovish, markets take note. 

The Fed currently buys $120 billion worth of bonds every month and extending this drive for longer weakens the greenback and implies the bank would raise interest rates only later. The Fed's actions also speak. Over the weekend, the Washington-based institution announced that it would hold its Jackson Hole Symposium online. If the Fed is forced to reduce its activities due to Delta, so is the broader economy. 

Federal Reserve Jerome Powell is set to deliver his speech at the gathering on Friday, and some even think he would take the extra step of pushing back against tapering. However, the dollar downfall is unlikely to continue, especially not against the pound.

The reason for the Fed to refrain from reducing support comes from the virus, which means weaker economic activity in the world's largest economy. That could lead to the greenback receiving fresh safe-haven flows. Moreover, cases are on the rise in the UK, and that could send sterling down.

Source: FT

Another reason to foresee sterling sliding comes from the data. Markit's preliminary UK Services Purchasing Managers' Index for August tumbled down to 55 points, far below 59 expected. Softer business sentiment implies a slower recovery. 

Overall, there are reasons to expect cable to remain under pressure. 

GBP/USD Technical Analysis

Pound/dollar is suffering from downside momentum on the four-hour chart and trades below the 50, 100 and 200 Simple Moving Averages (SMAs). Moreover, it has exited oversold conditions – the Relative Strength Index (RSI) is above the lows. Pound/dollar bears are in control.

Support awaits at 1.36, which was Friday's trough. It is followed by 1.3570, which was the trough in July. Further down, the psychologically significant 1.35 level awaits. 

Resistance is at 1.3660, the daily high. It is followed by 1.3725, which supported sterling last week, and then by 1.3760 and 1.3785. 

More When is a taper not a rate hike? Whenever the Fed says so