- GBP/USD witnessed an intraday short-covering from 100-day SMA, near the 1.3670-65 region.
- Sliding US bond yields capped the upside for the USD bulls and extended support to the major.
- The set-up remains tilted in favour of bearish trades and supports prospects for further losses.
The GBP/USD pair recovered over 50 pips from two-month lows and jumped to fresh daily tops, around the 1.3720-25 region during the early European session.
A weaker tone surrounding the US Treasury bond yields kept a lid on any strong gains for the US dollar, at least for the time being. This, in turn, assisted the GBP/USD pair to once again rebound from the 100-day SMA support, near the 1.3670-65 region. That said, a combination of factors might hold bulls from placing aggressive bets and cap the upside for the major.
A possible link between the AstraZeneca coronavirus vaccine and a rare blood clotting disorder forced the UK's medical regulator to issue a temporary ban on the jab for the below 30 age group. The development could delay the UK government's plan to reopen the economy and could act as a key headwind for the British pound amid the latest unrest in Northern Ireland.
On the other hand, a slight deterioration in the global risk sentiment and Fed Chair Jerome Powell's upbeat comments should continue to underpin demand for the safe-haven USD. News that one of Iran's nuclear facilities was hit by a terrorist act dented investor’s appetite for perceived riskier assets and benefitted traditional safe-haven assets, including the USD.
Meanwhile, Powell – during an interview with 60 Minutes over the weekend – said that the US economy is set to make a turnaround and increased growth should provide more jobs. The comments reinforced market expectations for a relatively faster US economic recovery, bolstered by the impressive pace of coronavirus vaccinations and US President Joe Biden's spending plan.
Powell further added that the Fed wants inflation moderately above 2% for some time but does not want it to go materially above 2%. It is worth mentioning that the reflation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed will retain ultra-low interest rates for a longer period, which could further lend support to the USD.
The fundamental backdrop still favours bearish traders and hence, the intraday bounce could be solely attributed to some short-covering move, which runs the risk of fizzling out rather quickly. Any subsequent positive move might still be seen as a selling opportunity near the 1.3735-40 region amid absent relevant market-moving economic releases, either from the UK or the US.
Technical levels to watch
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