GBP/USD Forecast: Sterling set to suffer even if the dollar takes a breather

Has sterling's bounce already ended? The chart is showing that GBP/USD has set to lower highs, exposing the currency pair's weakness – and for good reasons. 

China reported weaker-than-expected consumption and production figures for July, and Bloomberg labels China's economy as "losing steam very fast." The world's second-largest economy is already grappling with an increase in COVID-19 cases – which have prompted authorities to close a busy port – and any slowdown weighs on markets. The risk-off mood benefits the dollar.

Markets are also worried about the plummet in US consumer confidence. According to the University of Michigan, sentiment has dropped below the pandemic trough in August, casting doubts about the recovery.

The flip side to downbeat economic news is that the Federal Reserve could delay tapering of its bond-buying scheme, thus printing more dollars for longer and devaluing the currency. Signs of a slowdown in US inflation also support looser monetary policy.

While markets await a speech from Fed Chair Jerome Powell on Tuesday, it is time to examine how the pound is positioned – and the answer is not positive. The Bank of England has been moving toward tightening its policy, but only just – it seems to be waiting for the Fed. 

Another reason to be cautious is Britain's COVID-19 infections, which have halted their decline – and even moved higher: 

Source: FT

One month after "Freedom Day," the Brits are yet to return to full activity as fears of the virus weigh on sentiment. 

All in all, even if the dollar reverses its gains, the pound is poorly positioned to take advantage of it.

GBP/USD Technical Analysis

Pound/dollar has been setting lower lows and lower highs, as the four-hour chart demonstrates. Another bearish sign is the pair's failure to recapture the 50 and 100 Simple Moving Averages. On the other hand, it is trading above the 200 SMA and benefits from upside momentum. 

Some resistance is at the daily high of 1.3873. It is followed by 1.3885, 1.3960 and 1.3980, all capped cable on its way down in August. 

Support is at 1.3835, the daily low. Further down, last week's trough of 1.3785 is the next level to watch. Lower, 1.3765 and 1.3725 await.