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Bullish technical set-up favours a move towards 1.3800 mark

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  • GBP/USD shot to fresh multi-year tops on Wednesday, albeit struggled to sustain above 1.3700 mark.
  • The risk-on mood weighed on the safe-haven USD and helped limit any further downside for the pair.

The GBP/USD pair jumped to fresh 32-month tops on Wednesday, albeit continued with its struggle to find acceptance above the 1.3700 mark and finally settled with modest daily gains. The strong intraday positive move was sponsored by a softer tone surrounding the US dollar and got an additional boost following the release of stronger-than-expected UK CPI consumer inflation figures. The British pound further benefitted from the rapid vaccination campaign and a gradual decrease in COVID-19 cases in the UK. Despite the supporting factors, the pair failed to capitalize on the move beyond the 1.3700 level and witnessed a sharp pullback of around 100 pips from daily swing highs.

However, persistent USD selling bias extended some support, instead assisted the pair to regain positive traction for the third consecutive session on Thursday. The greenback remained depressed amid the prevalent upbeat market mood, supported by the increasing likelihood of additional US stimulus package under Joe Biden’s presidency. In fact, Biden pitched a plan to pump $1.9 trillion more into the struggling US economy in his first hours as the new US president. This, in turn, helped offset worries about the potential economic fallout from the coronavirus pandemic. This, in turn, pushed the US equity markets to fresh record highs and undermined the USD’s safe-haven demand.

There isn’t any major market-moving data due for release from the UK on Thursday. Meanwhile, the US economic docket features the release of Philly Fed Manufacturing Index, the usual Initial Weekly Jobless Claims and housing market data – Building Permits and Housing Starts. This, along with the broader market risk sentiment, might influence the USD price dynamics and provide some impetus to the major. Apart from this, the ECB monetary policy decision could trigger some cross-driven movement and assist traders to grab meaningful opportunities.

Short-term technical outlook

From a technical perspective, the recent strong move up over the past four months or so has been along an upwards sloping channel. This points to a well-established near-term bullish trend and supports prospects for additional gains. With technical indicators on the daily chart still far from being in the overbought territory, the pair seems all set to prolong the upward trajectory and aim to reclaim the 1.3800 mark. The mentioned level marks the top boundary of the ascending channel, which if cleared decisively will be seen as a fresh trigger for bullish traders.

On the flip side, any meaningful pullback is likely to find decent support and attract some dip-buying near the 1.3620 horizontal support. This is closely followed by supports near the 1.3600 mark and the 1.3585 region. Failure to defend the mentioned levels might prompt some technical selling and turn the pair vulnerable to correct further, possibly towards testing the key 1.3500 psychological mark.

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