GBP/USD falls below 1.3100 as DXY recovery picks up steam

• GBP/USD fails to hold on to early recovery gains on Monday.
• US Dollar Index turns positive on the day above 93.20.
• Tuesday's economic docket will feature mid-tier data from the US.

The GBP/USD pair lost more than 100 pips on Friday and staged a rebound at the start of the week. However, the pair lost its momentum after climbing to 1.3150 area and erased all of its daily gains. As of writing, the pair was down 0.15% on a daily basis at 1.3068.

In the absence of significant macroeconomic data releases from the UK, the greenback's market valuation remained the sole driver of GBP/USD's movements on Monday.

The upbeat market mood caused the US Dollar Index (DXY) to drop below 93.00 during the first half of the day and helped GBP/USD edge higher. During the American trading hours, rising US Treasury bond yields helped the USD gather strength and lifted the DXY to a daily high of 93.30. At the moment, the DXY is up 0.06% on the day at 93.26 and the 10-year US T-bond yield is up more than 2%.

There won't be any data featured in the UK economic docket on Tuesday. Later in the day, Richmond Fed Manufacturing Index, New Home Sales and Conference Board Consumer Confidence from the US will be looked upon for fresh impetus. However, the market reaction to these data are likely to be muted with investors waiting for FOMC Chairman Jerome Powell's speech at the Jackson Hole Symposium on Thursday.

GBP/USD technical outlook

Axel Rudolph, Senior FICC Technical Analyst at Commerzbank, shared his technical outlook for the GBP/USD with key takeaways found below.

"GBP/USD last week reversed just ahead of the 1.3284 December high. The new high of 1.3268 was accompanied by a divergence of the daily RSI and this was coupled with a 13 count. We would thus allow for a corrective dip back.”

“While the cable remains below 1.3284 we would allow for a slide to the 1.2814 June high and possibly the 1.2718 support line. Above 1.3284 introduces scope to the 1.3500/15 December 2019 high and the January 2009 low.”

Additional levels to watch for