GBP/USD Forecast: Pound well-positioned to fight back against King Dollar

• GBP/USD has been under pressure amid the worsening market mood.
• Optimism about UK covid cases supports the pound, but the safe-haven dollar has reasons to rise.
• Tuesday's four-hour chart is painting a mixed picture. 

Can cable bulls hold on? GBP/USD has been sliding from the highs as the US dollar gains ground amid safe-haven flows. Sterling can fight back better than others.

The latest upside trigger for the greenback – and downside for stocks – comes from China. Authorities in the world's second-largest economy have extended their crackdown on technological companies, focusing on education firms in recent days. Worries that innovation and global growth are hampered have weighed on sentiment. 

Tensions are mounting ahead of the Federal Reserve's meeting on Wednesday. Back in June, Fed Chair Jerome Powell said that the debate about tapering bond buys has begun and the bank surprised markets by signaling two rate hikes in 2023. Speculation about the timing is rife. 

While inflation – the main driver for the hawkish shift – has continued higher, it is probably too soon for the Fed to announce withdrawing support. Many people have yet to return to their pre-pandemic jobs and Powell recently indicated he is in no rush to tighten policy.

One of the reasons the Fed will likely remain patient is the rapid rise in COVID-19 cases in America and elsewhere. While the dollar's safe-haven status means that infections in America are positive for the currency, there is reason to be cautiously optimistic about the UK.

Britain's covid cases have dropped for the sixth consecutive day and just eight days after the country opened up. Scientists warn that the current level of cases still reflects activities held before "Freedom Day" on July 19, but any move in the right direction is welcome. The UK releases its next update in the afternoon.

Apart from these topics, investors will also watch the Conference Board's Consumer Confidence measure for July and Durable Goods Orders for June. A series of disappointing economic indicators for last month implies that this gauge of investment could fall short of estimates as well. 

Durable Goods Orders Preview: Why expectations could be too high, data useful for trading GDP

Overall, dollar strength is robust, but should the mood change, the pound is well-positioned to push higher.

GBP/USD Technical Analysis

Pound/dollar is benefiting from upside momentum on the four-hour chart and is still holding above the 100 Simple Moving Average, despite the recent fall. It is trading under the 200 SMA but above the 50 one. 

At the time of writing, cable is battling 1.3775, which is where the 100 SMA hits the price. Further support is at 1.2730, 1.3690 and 1.3640. 

Resistance awaits at the daily high of 1.3830, followed by 1.3905, 1.3935 and 1.40. 

See Analyzing inter-market correlations to see if reflation trade is coming to an end – July 2021