GBP/USD Analysis: Ascending channel resistance capped gains, bullish potential still intact

• A combination of supporting factors assisted GBP/USD to gain strong traction on Monday.
• The sterling was supported by optimism over a possible Brexit deal and upbeat UK PMIs.
• A solid USD rebound prompted some selling and capped the pair near the 1.3400 mark.

The GBP/USD pair gained some strong positive traction on the first day of a new trading week and shot to the 1.3400 neighbourhood, or the highest level since September 2. The British pound was well supported by the prospect of a last-minute Brexit deal and got an additional boost from better-than-expected UK PMI prints for November. Bulls largely shrugged off not so optimistic comments by the EU chief Brexit negotiator Michel Barnier, saying that fundamental differences remain in the trade talks with the UK. This comes on the back of the EU negotiating team's briefing on Friday that Brexit talks remain unresolved on three sticking points – the so-called level playing field, fisheries and state-aid rules. Brexit anxieties, however, did little to hinder the intraday positive move for the sterling.

On the other hand, the US dollar remained depressed through the first half of the trading action on Monday on the back of the positive news of successful COVID-19 vaccine trials. Apart from this, speculations that the Fed might ease monetary policy further in December – amid concerns about the economic fallout from the continuous surge in new coronavirus cases – exerted some additional downward pressure on the greenback. However, a late pickup in the USD demand kept a lid on any further gains for the major, rather prompted some selling at higher levels. The greenback witnessed an intraday turnaround following the release of the preliminary estimates of Markit PMIs for November. The flash version of the US Manufacturing PMI unexpectedly jumped to a 74-month high level of 56.7 and Services PMI rose to 57.7 – a 68-month high – from 56.9 previous.

This, along with a strong rebound in the US Treasury bond yields, further benefitted the greenback and contributed to the pair's retracement of over 75 pips from daily tops. Despite the pullback, the pair managed to end the day in the positive territory and managed to catch some fresh bids during the Asian session on Tuesday. news that the US President-elect Joe Biden was given the go-ahead to begin his White House transition added to an already upbeat market mood. This, in turn, prompted some fresh selling around the USD and was seen as a key factor behind the pair's modest uptick. In the absence of any major market-moving economic releases from the UK, the incoming Brexit-related headlines will continue to play a key role in influencing the sentiment surrounding the pound and infuse some volatility around the GBP crosses.

Meanwhile, the US economic docket features the releases of the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index. This, along with the broader market risk sentiment and developments surrounding the coronavirus saga, will further be looked upon for some meaningful trading impetus.

Short-term technical outlook

From a technical perspective, the pair stalled its bullish trajectory near a resistance marked by the top end of a two-month-old ascending trend-channel. However, the fact that the pair has still managed to hold above a previous strong resistance, now turned support near the 1.3310 region, favours bullish traders. Hence, a move back towards challenging the trend-channel barrier, currently near the 1.3400 mark, remains a distinct possibility. Some follow-through buying will be seen as a fresh trigger for bullish traders and push the pair further towards September monthly swing highs, around the 1.3480 region, en-route the key 1.3500 psychological mark.

On the flip side, any subsequent fall below the 1.3310-1.3300 resistance-turned-support might now be seen as a buying opportunity. This, in turn, should help limit the downside near the 1.3260 horizontal support. Failure to defend the mentioned support levels might prompt some technical selling and drag the pair back towards the 1.3200 round-figure mark. The corrective slide could further get extended to the 1.3160 region before the pair eventually drops to test the next major support near the 1.3110-05 zone.