- A broad-based USD weakness assisted GBP/USD to gain positive traction on Tuesday.
- Retreating US bond yields prompted some USD profit-taking and remained supportive.
- The lack of strong follow-through buying warrants caution before placing bullish bets.
The GBP/USD pair maintained its bid tone through the mid-European session, albeit has retreated around 30 pips from daily swing highs near the 1.3900 mark.
The pair gained some positive traction on Tuesday and finally broke out of a consolidative trading range held over the past 36-hours or so. The momentum pushed the GBP/USD pair further away from one-month lows touched on Friday and was exclusively sponsored by a broad-based US dollar weakness.
Expectations that the Fed will take some action to curb the rapid rise in long-term borrowing cost triggered a sharp pullback in the US Treasury bond yields. This, in turn, prompted the USD bulls to take some profits off the table and provided a modest intraday lift to the GBP/USD pair.
That said, the prospects for a relatively faster US economic recovery helped limit any deeper losses for the greenback. Investors remain optimistic about the US economic outlook amid the impressive pace of COVID-19 vaccinations and the passage of a much-awaited $1.9 trillion stimulus package.
This, in turn, might cap the upside for the GBP/USD pair and thus, warrants caution for aggressive bullish traders. In the absence of any major market-moving economic releases, it will be prudent to wait for some strong follow-through buying before positioning for any further gains.
Even from a technical perspective, the GBP/USD pair’s inability to capitalize on the move and failure near the 1.3900 mark favours bearish traders. Subsequent weakness below mid-1.3800s will add credence to the negative outlook and pave the way for an extension of the recent corrective slide.
Technical levels to watch