GBP/USD Forecast: Not out of the woods yet, descending channel breakdown in play

The GBP/USD pair attracted some buying in the vicinity of the 1.3200 mark on the first day of a new week and reversed a part of Friday's losses. The intraday uptick pushed the pair back above mid-1.3200s during the early part of the European session and was supported by a positive Brexit-related development. The UK granted a new batch of licenses for French ships seeking to work in British waters. The move was seen as a sign of progress on a broader trade agreement, which, in turn, provided a modest lift to the British pound. That said, a combination of factors might keep a lid on any meaningful gains for the major.

Speculations that the Omicron variant of coronavirus could hold back the Bank of England (BoE) from raising interest rates on December 16 could act as a headwind for the sterling. A hawkish member of the BoE Monetary Policy Committee, Michael Saunders, noted that the new COVID-19 variant has added uncertainty to the economic outlook. Saunders added that there were advantages in waiting for more information before tightening monetary policy. Apart from this, the prevalent bullish sentiment surrounding the US dollar warrants some caution for aggressive bullish traders and before positioning for any further appreciating move.

As investors looked past Friday's mixed US NFP report, the USD was back in demand and remained well supported by the prospects for a faster policy tightening by the Fed. Market participants seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflationary pressures. In fact, the Fed funds futures indicate a high probability of the Fed liftoff by May 2022, which, in turn, continued acting as a tailwind for the buck. That said, the risk-on impulse in the markets, amid reports that Omicron patients only had relatively mild symptoms, capped gains for the safe-haven greenback.

It will now be interesting to see if the GBP/USD pair is able to capitalize on the recovery move or meets with a fresh supply at higher levels. In the absence of any major market-moving economic releases, either from the UK or the US, traders on Monday will take cues from a scheduled speech by the BoE Deputy Governor Ben Broadbent. Apart from this, the broader market risk sentiment will influence the USD demand and provide some impetus to the major.

Technical outlook

From a technical perspective, Friday’s downfall confirmed a near-term bearish break through a short-term descending channel extending from July. That said, the pair’s ability to defend the 1.3200 mark warrants some caution for aggressive bearish traders. Hence, it will be prudent to wait for some follow-through selling below the mentioned handle before positioning for any further depreciating move. The pair might then accelerate the downfall 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, any subsequent move up is likely to confront a stiff resistance near the 1.3300 round figure. A sustained move beyond will suggest that the pair has formed a near-term base near the 1.3200 mark and pave the way for additional near-term recovery. The pair might then accelerate the recovery momentum towards the 1.3340-50 supply zone en-route the 1.3370 area and the 1.3400 level. The latter should act as a key barrier, which if cleared decisively will negate any near-term bearish bias.