- GBP/USD has gone into a consolidation phase near 1.3800.
- GBP weakness on soft inflation data remained short-lived on Wednesday.
- GBP/USD continues to fluctuate in the three-week-old ascending channel.
The British pound has managed to shake off the selling pressure on the soft inflation data on Wednesday and closed at its highest level in more than a month at 1.3825 before going into a consolidation phase on Thursday.
Although the probability of a Bank of England (BoE) rate hike in November fell after the annual Core Consumer Price Index in the UK edged lower to 2.9% in September from 3.1%, GBP/USD didn't have a difficult time regaining traction.
According to the CME Group's BoEWatch tool, investors still see a 70% chance of a rate increase before the end of the year. In the absence of Brexit-related developments, the hawkish BoE policy outlook allows the GBP to outperform its rivals.
Meanwhile, the cautious market mood is helping the dollar find demand in the European session on Thursday and capping GBP/USD's upside for the time being. The US Dollar Index, which tracks the greenback's performance against a basket of six major rivals, was last seen posting modest daily gains at 93.70. In case safe-haven flows start to dominate the financial markets, GBP/USD could extend its correction but technical boundaries will assist investors in figuring out the pair's short-term direction.
The US Department of Labor will publish its weekly Initial Jobless Claims data later in the day. September Existing Home Sales and October Philadelphia Fed Manufacturing Index will also be featured in the US economic docket. Nevertheless, the risk perception is likely to impact the dollar's valuation.
GBP/USD technical outlook
After reaching the upper limit of the three-week-old ascending regression channel near 1.3840, GBP/USD reversed its direction and retreated to the middle line of the channel.
Currently, the pair is testing that support at 1.3800. If a four-hour candle closes below that level, 1.3760 (lower line of the channel, static level) could be seen as the next support. As long as buyers hold the price above that level, the near-term bullish bias will remain intact. A daily close below that support, however, could open the door for additional losses toward 1.3700 (200-period SMA, psychological level) and 1.3640 (100-period SMA).
On the upside, 1.3840 aligns as the initial resistance ahead of 1.3880 (static level) and 1.3900.
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