GBP/USD price action making a bear trap?

GBP/USD has recently broken the YTD high but has since met fierce rejection to send the pair back below the psychological 1.43 handle. The question is whether to buy the dip below the double top highs of 13th April or has this more to go to the downside? Currently, GBP/USD is trading at 1.4297, down -0.29% on the day, having posted a daily high at 1.4378 and low at 1.4285.

GBP/USD  has been the best performing currency in the G10 space for the year to date on the basis of the agreement for a Brexit transition deal and prospects for the BoE to start hiking rates as soon as next month May 10th. However, there are signs creeping through that the UK  economy lost momentum towards the end of Q1 and Brexit talks are not over and there are obstacles still ahead. 

Where to now?

Much depends on whether a free trade deal will be agreed between the UK and EU, so until then, its a risk to be long at such levels and there could be some good reason to take a step back here until further signs of economic and Brexit traction that could warrant further rate hikes form the BoE down the line. For today, the UK releases some mixed data which analysts at Scotiabank reviewed but still argue the case for a higher pound. 

GBP/USD: UK data mixed, pound on back foot, but is still ... - Scotiabank

On the flip side, analysts at Rabobank see scope for GBP bulls to falter on a 1 to 3 mth view and see the potential for EUR/GBP to trade high. "However, based on our house view that a last-minute free trade will be agreed between the UK and EU, we see EUR/GBP trading around 0.84 on a 12 mth view," the analysts at Rabobank added. 

GBP/USD levels

The break of the 200-W SMA at 1.4235 was key and bulls now need closes above the Jan 2018 high of 1.4346 for a run towards 1.5022 on the very wide. The psychological target comes as the 1.40 handle that guards 1.3960 and the four-month uptrend line at 1.3844.