GBP/USD bulls search fresh clues to cross 100-DMA hurdle

• GBP/USD retreats above 1.3900, fades recovery from two-month low.
• Italy backs Euro 2020 final off the UK, British PM Johnson warns over rough winter on Delta variant fears.
• Quarantine rules will be easy for fully jabbed but uncertainty over unlock prevails.
• UK PMIs, BOE become the key, Powell’s testimony eyed for immediate direction.

GBP/USD bulls take a breather around 1.3925, following the heaviest rebound in two months, amid Tuesday’s Asian session. The cable pair benefited from the risk-on mood the previous day while the latest inaction could be linked to mixed headlines from the Fed and concerning the UK’s covid conditions, as well as cautious sentiment ahead of the key data/events.

With the latest Fedspeak marking a sustained battle to tame reflation and rage hike woes, coupled with the reduction in the US inflation expectations, market sentiment improved the previous day. Upbeat mood pulled the US dollar index (DXY) back from April levels while also favoring the US Treasury yields’ rebound from four-month lows.

Fed Chairman Jerome Powell’s prepared remarks for Tuesday’s Testimony, published recently, term the inflation risk as transitory, suggesting no major challenges to the present monetary policies. Furthermore, St. Louis Fed President James Bullard sounded a bit calmer while saying that the low interest rates and low inflation rate era are not ending any time soon. Alternatively, New York Fed President John C. Williams takes multiple turns in his latest speech that recently mentioned that Fed is talking about talking tapering. Dallas Fed President Robert Kaplan was on the same line while favoring “taking the foot off the accelerator sooner rather than later.”

On the other hand, Britain’s covid conditions remain grim amid faster spread of the Delta variant raising doubts over the unlock even as The Times said quarantine rules for the fully jabbed will be dropped. Reuters said, “The United Kingdom recorded 10,633 new cases of COVID-19 on Monday, up from the 9,284 the day before, the government said in its daily statistical update.” Due to the rising fears of Delta strain, Italy pushes for the Euro 2020 final to hold in Rome rather than the UK.

Elsewhere, Britain prepares for the trans-Pacific partnership while Brexit drama with the European Union continues.

Amid these plays, S&P 500 Futures print mild gains and the US 10-year Treasury yield keeps the previous day’s recovery moves, after dropping to the four-month low.

Moving on, Testimony by Fed’s Powell will be the key event of the day whereas preliminary readings of the UK’s PMIs and the BOE should be important afterward. Given the likelihood of Powell’s sustained efforts to reject tapering and rate hike fears, GBP/USD may have further upside to go.

Technical analysis

The lows marked during late April, as well as recently, restrict short-term GBP/USD downside around 1.3800. However, the upside moves need a sustained break of 100-day SMA level of 1.3945 to battle the key resistance surrounding 1.4000–4010.