GBP/USD Forecast: Resistance is futile, sterling set to succumb to dollar strength

GBP/USD is under pressure as US growth expectations boost the dollar.
The UK's reopening and rapid vaccination campaign are helping sterling hold up.
Monday's four-hour chart is showing that bears are in the lead.

Yohay Elam FXStreet

Back to school day in the UK serves as a battle cry for pound bulls – which are fighting the might of King Dollar. Britain's first stage of reopening is a boost to the economy as parents will now be able to work more easily at home, without interruption from their kids. The nation also benefits from its rapid vaccination campaign – one in every three Brits has received protection against COVID-19, and younger age groups are now being included.

A third factor supporting sterling comes from the Bank of England. Governor Andrew Bailey reiterated his position that the outlook is positive and stressed that work toward negative rates does not imply they are soon on the cards.

However, sterling is battling with the might of rising US bond yields. Returns on ten-year Treasuries – the global benchmark – are hovering around 1.60%, the highest since the crisis and buoyed by first upbeat developments. The US Senate passed a modified version of President Joe Biden's $1.9 trillion stimulus package, which is now set for rapid approval by the House.

Is so much stimulus needed? Friday's Nonfarm Payrolls report showed an increase of 379,000 jobs in February, beating estimates and coming on top of upward revisions to previous months. Moreover, markets are still digesting Federal Reserve Chair Jerome Powell's refusal to push yields lower. In a speech on Thursday – which is still causing shivers in stock markets – Powell only said that the increase in returns "caught my attention." The Fed is now in its pre-rate decision "blackout period."

All in all, dollar strength is set to continue and sterling may resist it – but perhaps not for too long.

GBP/USD Technical Analysis

Pound/dollar has dropped below the 200 Simple Moving Average on the four-hour chart, another bearish sign that joins downside momentum and the fact that the Relative Strength Index is above 30 – outside oversold conditions.

Support awaits at Friday's low of 1.3780, followed by 1.3740, which capped cable back in early February. Further down, 1.3680 is eyed.

Resistance awaits at 1.3860, and then by 1.3880 and 1.3930 – all accompanied the pair's recent slide.

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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