GBP/USD bears chippng away at hourly support

• GBP/USD bears are seeking a break of hourly support and eye a drop to test 1.3820. 
• The Boe and Fed is the driving theme while the US dollar is caught up in risk-on and off ebbs and flow. 

After hitting a five-week high of $1.3983 on Friday, closing its best week versus the weakening greenback since early May, the bears have piled in again as the week gets underway. 

At the time of writing, GBP/USD is trading at 1.3886 and down some 0.13%  on the day so far.

To start the day, the pound was bid with a firmer global risk tone as traders walked in from the weekend on the back of the news of the US infrastructure bill.

US Senators introduced a sweeping $1 trillion bipartisan plan to invest in infrastructure, with some predicting the chamber could pass this week the largest public works legislation in decades.

Additionally, a drop in COVID-19 cases and the reopening of the British economy has helped keep the pound elevated in recent days, with the currency fighting back from its biggest fall in nine months in June.

However, the US dollar is showing some signs of life on Monday in attempts to climb from the lows printed on Friday vs a basket of major currencies. 

After recouping some of its recent losses Friday, DXY is flat and oscillating around the 92 figure. 

Some analysts remain positive on the dollar, but acknowledge that the rally is unlikely to resume in force until a more hawkish Fed narrative takes hold.  

This week will be a critical one for the greenback in terms of data.

It has suffered a less inspiring Groww Domestic Product report of late, a miss in the Manufacturing PMIs today and Friday's PCE, the Fed's preferred measure of inflation also missed expectations, rising 0.4% MoM versus 0.6%.

Nevertheless, the US Nonfarm Payrolls data will be eyed with an emphasis at that Fed, more so than inflation readings, with respect to timings of a taper. 

Markets are still trading off Fed chair, Jerome Powell’s dovish press conference rather than the hawkish insertion of tapering in the official statement which leaves the US dollar vulnerable of the jobs data does not come in hot.

Fed speakers, such as Kashkari and Brainard have both came out on the dovish side and underscored Powell’s message which has not helped the US dollar.

The next few weeks into the Jackson Hole will be critical for data and the greenback.

The next data will be the Services PMI to be reported Wednesday and are expected at 60.5 vs. 60.1 in June.  

Overall, analysts at Brown Brothers Harriman are bullish on the greenback and the US economy, explaining that the PMI readings of late, despite some misses of expectations, ''remain at historically high levels, signifying continued strength in the economy.''

''Despite the mildly disappointing read for Q2 growth, the US economy should continue to post strong growth in Q3.  Atlanta Fed GDPNow model just started estimating Q3 growth last Friday and clocks in at 6.1% SAAR.  That's down slightly from the 6.5% reported for Q2 last week but is still well above the NY Fed's Nowcast reading of 4.19% SAAR for Q3. BBG consensus is 7.1% for Q3 but this is likely to edge lower after Q2 growth fell short of the 8.5% consensus,'' the analysts explained.

''We still have fiscal stimulus in the pipeline and so we think growth around 6.0-6.5% in Q3 is quite likely.''

Eyes on the BoE

Meanwhile, the market's attention will flip to the Bank of England meeting next Thursday. 

The BoE is expected to keep its foot firmly pressed on the stimulus pedal.

Some see the need for the central bank to begin tapering its bond-buying programme as the economy recovers due to the prospect of continued consumer-led growth, allied to a material upgrade in the inflation profile in the UK.

However, the consensus is that there will not be any new guidance on the interest rate path but, instead, a repeat of prior language that ‘significant progress’ is needed before the stimulus is removed.

Only 1-2 members are likely to vote for an early end of the QE and if there are no surprises, then the impact on GBP should be rather limited.

''We look for the MPC to keep policy unchanged at this meeting, despite recent hawkish sentiment from two members. While wage and inflation dynamics remain strong, there are early signs of a slowdown in demand,'' analysts at TD Securities argued. ''The QE decision will likely not be unanimous.''

''We do not expect the August MPC meeting to provide a strong directional cue for GBP, particularly as FX markets have been content to shrug off stronger policy signals elsewhere,'' the analysts at TDS said.

As for positioning, CFTC Positioning Report: USD net longs at 15-month highs

GBP/USD technical analysis

The price is stuck at hourly support. 

A break here opens risk to the next layer of support in the 1.3820 area ahead of 1.3790 old daily resistance.