- GBP/USD has turned south after testing 1.3500 on Wednesday.
- Downward correction could extend if 1.3440 support turns into resistance.
- Buyers are likely to try to reclaim control as long as 1.3400 holds.
GBP/USD has reversed its direction after rising to its highest level in more than a month at 1.3505 during the Asian trading hours. The dollar's market valuation continues to drive the pair's action heading into 2022 and volatility could increase ahead of the New Year holiday.
The technical outlook suggests that the British pound could have a tough time regathering its strength but buyers could look to reclaim control as long as key support levels remain intact.
During the American trading hours on Wednesday, the greenback faced strong bearish pressure. The lack of fundamental drivers behind the dollar's valuation suggested that the currency was struggling to find demand amid improving market sentiment. Nevertheless, rising US Treasury bond yields helped the USD erase a portion of its losses and forced GBP/USD to turn south.
The weekly Initial Jobless Claims data and the ISM Chicago's PMI for December from the US will be looked upon for fresh impetus. However, market participants are likely to pay little to no attention to these releases.
GBP/USD Technical Analysis
GBP/USD continues to trade above the ascending trend line coming from December 21 after briefly dipping below it on Wednesday. The 20-period SMA on the four-hour chart and the trend line form the initial support at 1.3440 and additional losses toward 1.3400 (psychological level, static level) could be witnessed if that level turns into resistance.
On the upside, 1.3500 (psychological level, daily high) aligns as initial resistance before 1.3550 (static level, former support).
In the meantime, the Relative Strength Index (RSI) indicator on the four-hour chart declined to 60, suggesting that the bullish momentum is fading away.
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