GBP/USD Forecast: Sellers to take action in case 1.3500 support fails

GBP/USD has been fluctuating in a relatively tight channel since the beginning of the week with investors waiting for the next catalyst. The near-term technical outlook confirms GBP/USD's indecisiveness and suggests that the pair needs to move out of the 1.3500-1.3560 band to determine its next direction.

Although the dollar is finding demand on rising US Treasury bond yields early Tuesday, the positive shift witnessed in risk sentiment is helping the British pound stay resilient against its peers. Reflecting the upbeat market mood, the UK's FTSE 100 Index is up nearly 0.7% and the S&P Futures are posting small daily gains.

Nevertheless, the dollar could continue to gather strength in case the benchmark 10-year US T-bond yield rises above the critical 2% level. At the time of press, the 10-year yield was rising more than 1% on the day at 1.94% and the US Dollar Index was up 0.2% at 95.62.

There won't be any macroeconomic data releases from the US on Tuesday that could trigger a significant market reaction and participants will pay close attention to US yields. Moreover, GBP/USD should remain at the mercy of the dollar's market valuation in the absence of fresh developments on the UK political front.

GBP/USD Technical Analysis

GBP/USD is moving up and down near the 100-period and 200-period SMAs on the four-hour chart. Additionally, the lack of directional strength is mirrored by the Relative Strength Index (RSI) indicator on the same chart, which continues to move sideways near 50.

On the downside, 1.3520 (Fibonacci 38.2% retracement level of the latest uptrend) aligns as interim support before 1.3500 (psychological level, 50-period SMA, Fibonacci 50% retracement). In case a four-hour candle closes below the latter, the pair could stretch lower toward 1.3460 (Fibonacci 61.8% retracement).

In order to regain its bullish momentum and target 1.3600 (psychological level), the pair needs to rise above 1.3560 (Fibonacci 23.6% retracement) and starts using that level as support.