GBP/USD: Focus on stocks

• Risk aversion could hurt GBP and vice versa.
• Charts favor further upside in Sterling.

GBP/USD jumped to 1.4218 last week - the highest level since Feb. 2 on the back of a brexit transitional agreement and strong UK data.

However, cable's jets were cooled by fears of US-China trade war and the resulting risk aversion in the stock markets. The spot ticked higher in Asia and was last seen trading at 1.4164 as the S&P 500 futures jumped 0.5 percent on reports the US and China are working to avert a full-blown trade war.

Focus on stocks

The relief rally in the stocks will likely gather pace if both nations soften their stance on trade. In such a scenario, the GBP/USD pair could revisit and may possibly break above the last week's high of 1.4218. Meanwhile, risk aversion could yield a pullback to 10-day moving average located at 1.4035. It is worth noting that British Pound still ranks last on the list of the anti-risk currencies, courtesy of UK's current account deficit.

Technical bias remains bullish

A sequence of higher highs and lower highs, upward sloping (biased bullish) 5-day MA, 10-day MA and the bullish RSI (above 50.00 and trending) indicates scope for a rally to 1.4278 (Feb. 2 high). A close higher would allow a sustained rally to 1.4345 (recent high). On the downside, breach of support at 1.4107 (5-day MA) could yield a pullback to 1.4036 (10-day MA) and 1.40 (psychological support).