GBP/USD Forecast: Seems vulnerable to slide further ahead of FOMC, BoE

• The USD prolonged its recent strong move up and dragged GBP/USD to near one-month lows.
• Hawkish Fed expectations, the risk-off impulse in the markets benefitted the safe-haven USD.
• This week’s central bank events – FOMC and BoE – should provide a fresh directional impetus.

The GBP/USD pair struggled to capitalize on its modest intraday uptick, or find acceptance above the 1.3800 mark and came under some renewed selling pressure on Friday. The disappointing release of UK monthly Retail Sales figures acted as a headwind for the British pound. This, along with sustained US dollar buying interest, exerted heavy downward pressure on the major. The recent US data pointed to the continuation of economic recovery and fueled speculations that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. This was evident from the recent spike in the US Treasury bond yields, which, in turn, continued acting as a tailwind for the greenback.

Apart from this, the risk-off impulse in the markets provided an additional boost to the safe-haven USD and dragged the pair to over three-week lows during the Asian session on Monday. Investors remain worried about the fast-spreading Delta variant and a global economic slowdown. Adding to this, the looming catastrophe at indebted developer China Evergrande added to the uncertainty ahead of this week's Federal elections in Canada and Germany. Apart from this, the reescalation of tensions between China and Western countries, namely the US, UK and Australia, further dented investors' appetite for perceived riskier assets. This was evident from a selloff in the global equity markets, which forced investors to take refuge in traditional safe-haven assets and further benefitted the greenback.

Apart from this, re-escalation of tensions between China and Western countries, namely the US, UK and Australia, further dented investors' appetite for perceived riskier assets. This was evident from a selloff in the global equity markets, which forced investors to take refuge in traditional safe-haven assets and further benefitted the greenback. This will be followed by the latest monetary policy update by the Bank of England on Thursday. The key central bank events should assist traders to determine the next leg of a directional move for the major. In the meantime, the USD price dynamics might act as an exclusive driver of the pair's momentum amid absent relevant market-moving economic releases on Monday, either from the UK or the US.

Short-term technical outlook

From a technical perspective, some follow-through will set the stage for an extension of the recent pullback from levels beyond the 1.3900 mark and turn the pair vulnerable. The downward momentum could then drag the pair further towards the 1.3620 intermediate support en-route the 1.3600 mark and YTD lows, around the 1.3570 region touched on July 20.

On the flip side, the 1.3755-65 region now seems to act as an immediate strong resistance, above which bulls might aim back to conquer the 1.3800 mark. A sustained move beyond could trigger a short-covering move and push the pair further towards the 1.3850-55 supply zone. The next relevant hurdle is pegged near the 1.3900 mark, which if cleared decisively will negate any near-term negative bias. The pair might then accelerate the momentum and climb further beyond late July swing lows, around the 1.3980-85 region and reclaim the key 1.4000 psychological mark.