GBP/USD Forecast: COVID-19 woes, stronger USD favours bearish traders

• A combination of diverging forces led to some intraday volatility around GBP/USD on Wednesday.
• The optimism over the easing of COVID-19 restrictions in the UK underpinned the British pound.
• Hawkish FOMC meeting minutes boosted the USD and exerted some heavy downward pressure.

The GBP/USD pair had some good two-way price moves on Wednesday and was influenced by a combination of diverging forces. Following the previous day's dramatic turnaround from the 1.3900 neighbourhood, the pair gained some positive traction amid the optimism over the imminent reopening of the UK economy. The UK Prime Minister Boris Johnson set out plans for the final step of easing lockdown on Monday and confirmed that all restrictive measures would be lifted on July 19. The supporting factor, to a larger extent, was offset by concerns about the spread of the highly contagious Delta variant of the coronavirus. This, along with resurgent US dollar demand, exerted some downward pressure and dragged the pair to fresh weekly lows.

Renewed COVID-19 jitters continued weighing on investors' sentiment, which, in turn, acted as a tailwind for the safe-haven greenback. The intraday USD buying picked up pace after the June FOMC meeting minutes revealed that policymakers expect conditions to reduce the pace of asset purchases to be met earlier than previously anticipated. Fed officials expected progress to continue and agreed that they must be ready to act if inflation or other risks materialize, suggesting that QE tapering discussions could begin in the coming months. On the rate hike, few participants noted that they expected it could come somewhat earlier than previously expected. This was in line with the median dot plots, projecting two interest rate hikes by 2023.

The pair tumbled nearly 90 pips from daily swing highs, albeit managed to find some support near mid-1.3700s and finally settled nearly unchanged for the day. That said, sustained USD buying failed to assist the pair to capitalize on the overnight bounce, instead prompted some fresh selling during the Asian session on Thursday. In the absence of any major market-moving economic releases from the UK, the USD price dynamics will continue to play a key role in influencing the intraday movement. Later during the early North American session, the release of the Initial Weekly Jobless Claims data from the US will be looked upon for some trading impetus.

Short-term technical outlook

From a technical perspective, the pair’s inability to capitalize on the recent positive move and the subsequent decline suggests that the near-term selling bias might still be far from being over. Hence, some follow-through weakness back towards testing two-and-half-month lows, around the 1.3730 region touched last Friday, remains a distinct possibility. This is followed by the 1.3700 mark and strong horizontal support near the 1.3665 region. A convincing break below will be seen as a fresh trigger for bearish traders and pave the way for an extension of an over one-month-old downward trajectory.

On the flip side, attempted recovery back above the 1.3800 mark might now confront immediate resistance near the overnight swing highs, around the 1.3840 region. A sustained strength beyond might assist bullish traders to aim back to conquer the 1.3900 mark. Some follow-through buying has the potential to push the pair further beyond an intermediate hurdle near the 1.3925-30 supply zone, towards reclaiming the key 1.4000 psychological mark.