GBP/USD Analysis: Bulls gearing up for a move beyond 1.4235 (YTD tops)

• GBP/USD attracted some dip-buying on Monday amid the emergence of fresh selling around USD.
• Declining US bond yields and the upbeat market mood continued undermining the safe-haven USD.
• An optimistic outlook for the UK economy acted as a tailwind for the GBP and remained supportive.

The GBP/USD pair witnessed some intraday selling on Monday, albeit attracted some dip-buying in the vicinity of the 1.4100 mark and finally settled nearly unchanged for the day. In the absence of any fresh fundamental developments, fears over the long-term impact of Brexit and the economic damage from the pandemic acted as a headwind for the British pound. That said, the optimistic outlook for the UK economy – amid the impressive pace of coronavirus vaccinations and the easing of lockdown measures – helped limit the downside.

According to the official data, more than 70% of adults have received their first jab of the COVID vaccine, while some 22 million have received their second dose. Adding to this, evidence that the vaccine is effective against the Indian variant bodes well with the UK government's plan to end restrictions fully on June 21. The pair recovered around 60 pips from daily swing lows and was further supported by the emergence of some fresh selling around the US dollar.

Fears about runaway inflation in the US receded after the White House pared down its infrastructure bill to $1.7 trillion from $2.25 trillion. This comes on the back of the Fed's stubbornly dovish view that the current rise in inflation will be transitory and dragged the yield on the benchmark 10-year US government bond to one-week lows. Various FOMC members, including the Fed Governor Lael Brainard, Atlanta Fed President Raphael Bostic and St. Louis Fed President James Bullard, reiterated that any spike in inflation is likely to be temporary.

This, along with the prevalent risk-on environment, continued weighing on the safe-haven greenback through the Asian session on Tuesday and allowed the pair to build on the overnight bounce. There isn't any major market-moving economic data due for release from the UK, leaving the pair at the mercy of the USD price dynamics. The US economic docket highlights the release of the Conference Board's Consumer Confidence Index. Apart from this, the US bond yields and the broader market risk sentiment might influence the USD price dynamics and produce some trading opportunities around the major.

Short-term Technical outlook

From a technical perspective, the recent move up from April monthly swing lows has been along an upward sloping channel. This points to a well-established short-term bullish trend and supports prospects for additional near-term gains. The constructive set-up was reinforced by the emergence of some dip-buying on Monday. That said, bulls might still wait for a sustained move beyond the 1.4200 mark before positioning for any further appreciating move. The pair might then aim to surpass YTD tops, around the 1.4235 region and aim to challenge the trend-channel resistance near the 1.4275 area. A convincing breakthrough will be seen as a fresh trigger for bullish traders and set the stage for an extension of the ongoing positive momentum.

On the flip side, the 1.4145-40 region now seems to protect the immediate downside. This is followed by support near the overnight swing lows, around the 1.4110 zone, below which the pair might accelerate the fall towards the 1.4050 horizontal support. The corrective slide could further get extended towards the key 1.4000 psychological mark. This is closely followed by support marked by the lower boundary of a short-term ascending channel, currently around the 1.3985-80 region, which if broken decisively will shift the near-term bias in favour of bearish traders.