GBP/USD Outlook: Bears are still in control, await US CPI before the next leg down

• GBP/USD witnessed a subdued/range-bound price action through the early European session.
• Reduced BoE rate hike bets undermined the sterling amid fresh COVID-19 measures in the UK.
• A modest pickup in the USD demand also contributed to keep a lid on the attempted recovery.

The GBP/USD pair struggled to capitalize on the overnight bounce from a one-year low and oscillated in a narrow trading band, around the 1.3200 mark through the early European session, on Thursday. The imposition of tougher COVID-19 restrictions in England turned out to be a key factor that acted as a headwind for the British pound. The UK Prime Minister Boris Johnson ordered people to work from home on Wednesday, wear face masks in public places and use vaccine passes to slow the spread of the Omicron variant of the coronavirus. This, along with persistent Brexit-related uncertainties, forced investors to scale back their bets for an imminent interest rate hike by the Bank of England in December. Apart from this, a modest pickup in US dollar demand kept a lid on any meaningful upside for the major.

A further rise in the US Treasury bond yields, along with the cautious market mood extended some support to the safe-haven greenback. In fact, the yield on the benchmark 10-year US government bond shot back above the 1.50% threshold amid hawkish Fed expectations. Investors seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. The money markets have been pricing in the possibility for an eventual liftoff in May 2022. Hence, the focus will remain on the release of the latest US consumer inflation figures on Friday. That said, a positive development surrounding the coronavirus saga capped gains for the greenback heading into the key data risk.

BioNTech and Pfizer said on Wednesday that a three-shot course of their COVID-19 vaccine was able to neutralise the Omicron variant in a laboratory test. This further eased market worries about the potential economic fallout from the spread of the new variant, though it was overshadowed by escalating geopolitical tensions. Relations between the US and Russia took a turn for the worse after US President Joe Biden threatened to impose strong economic and other measures on Russia if it invades Ukraine. This comes amid looming American-Sino woes and tempered investors' appetite for perceived riskier assets, which drove some haven flows towards the greenback.

The mixed fundamental backdrop held back traders from placing aggressive bets and led to the pair's range-bound price action amid absent relevant market moving economic releases from the UK. Later during the early North American session, traders might take cues from the release of the usual Weekly Initial Jobless Claims data from the US. Apart from this, the US bond yields and the broader market risk sentiment will influence the USD price dynamics, which, in turn, should produce some short-term opportunities around the major.

Technical outlook

From a technical perspective, nothing seems to have changed much for the pair and the near-term bias remains tilted in favour of bearish traders. Hence, any attempted recovery move could be seen as a selling opportunity and runs the risk of fizzling out rather quickly. The pair remains vulnerable to prolonging its recent bearish trajectory and retesting the overnight swing low, around the 1.3160 region. The next relevant support is pegged near the 1.3125 region before the pair breaks below the 1.3100 mark and accelerates the decline towards the 1.3050-45 region.

On the flip side, a short-term descending trend-channel support breakpoint, around the 1.3225-30 region, now seems to act as an immediate hurdle. Any subsequent move up is likely to face stiff resistance and remain capped near the weekly swing high, just ahead of the 1.3300 mark. A sustained strengthing beyond could trigger a short-covering move 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 bottomed out in the near term and negate the bearish outlook.