GBP/USD Analysis: Slide below 1.3200 mark remains a distinct possibility

• GBP/USD gains some positive traction on Tuesday, albeit struggling to capitalize on the move.
• Hawkish Fed expectations acted as a tailwind for the USD and capped gains amid Brexit woes.
• The set-up favours bearish traders and supports prospects for an extension of the downtrend.

The GBP/USD pair built on the previous day's positive move up from the vicinity of 1.3200 and gained some traction during the first half of the trading action on Tuesday. In the absence of any negative Brexit-related headlines, rising bets for an imminent rate hike by the Bank of England in December acted as a tailwind for the British pound. Apart from that, subdued US dollar demand extended some support to the pair.

Reports that Omicron patients had only shown mild symptoms helped ease fears about the potential economic fallout from the new variant of the coronavirus and boosted investors' confidence. This was evident by the positive tone witnessed in equity markets, which undermined the greenback's relative safe-haven status. That said, the prospects for faster policy tightening by the Fed helped limit USD downside and capped gains for the pair.

Investors seem convinced that the Fed will hike interest rates sooner rather than later and have been pricing in the possibility of an eventual liftoff in May 2022. This, along with a further recovery in the US Treasury bond yields, continued lending some support to the greenback. Apart from this, the UK-EU impasse over the Northern Ireland Protocol further held back traders from placing aggressive bullish bets around the pair.

The recovery faltered ahead of the 1.3300 round-figure mark and the pair was last seen trading around mid-1.3200s. There isn't any major market-moving economic data due for release on Tuesday, either from the UK or the US, leaving the pair at the mercy of USD price dynamics. Hence, traders will take cues from the broader market risk sentiment and the US bond yields, which might influence the USD and provide some impetus to the major.

Technical outlook

From a technical perspective, the emergence of fresh selling at higher levels validates last week's bearish break through a short-term descending channel extending from July. This, in turn, supports prospects for an extension of the recent downward trajectory from the 1.3830-35 region touched in October. A subsequent slide back towards sub-1.3200 levels, or the YTD low set last week, remains a distinct possibility. Some follow-through selling should pave the way for a fall towards the next relevant support near the 1.3125 region en-route the 1.3100 mark and the 1.3050-45 region.

On the flip side, the 1.3290-1.3300 region might continue to act as immediate strong resistance. Sustained strength beyond, could prompt a short-covering move and accelerate the recovery towards the 1.3340-50 supply zone. This is followed by resistance near the 1.3370 area and the 1.3400 level. The latter should act as a key barrier, which if cleared decisively will suggest that the pair has formed a near-term base and negate the bearish outlook.