GBP/USD Outlook: Failure near ascending channel resistance warrants caution for bulls

• GBP/USD stalls the overnight sharp pullback from its highest level since June 17.
• Bets for less aggressive Fed rate hikes cap the USD recovery and offer support.
• A bleak outlook for the UK economy seems to be a headwind and capping gains.

The GBP/USD pair witnessed an intraday turnaround of over 180 pips from its highest level since June 17, touched on Monday amid a solid US Dollar recovery from a multi-month low. The incoming stronger US macro data fueled speculations that the Federal Reserve may raise interest rates more than projected and prompted an aggressive USD short-covering move. The Institute for Supply Management (ISM) reported that the US Service PMI unexpectedly increased to 56.5 in November from 54.4 in the previous month. This comes from the upbeat US monthly jobs report released on Friday and suggests that the economy remained resilient despite rising borrowing costs.

Moreover, Fed Chair Jerome Powell indicated last week that the peak interest rate would be higher than expected. This, in turn, pushed the US Treasury bond yields higher, which drove some haven flows towards the greenback along with the overnight slide in the US equity markets. Investors, however, seem convinced that the US central bank could scale back the pace of its rate-hiking cycle and have been pricing in a relatively more minor 50 bps lift-off in December. Apart from this, the latest optimism over the easing of COVID-19 curbs in China keeps a lid on the safe-haven buck and assists the GBP/USD pair in regaining some positive traction during the Asian session on Tuesday.

The British Pound, on the other hand, gets an additional lift after the  British Retail Consortium (BRC) reported that Like-For-Like Sales increased 4.1% YoY in November versus 1.2% prior. The upside, meanwhile, lacks bullish conviction amid a bleak outlook for the UK economy. Nevertheless, the GBP/USD pair, so far, has managed to hold its neck above a technically significant 200-day SMA and remains at the mercy of the USD price dynamics. Market participants now look to the release of the UK Construction PMI and the US Trade Balance data. The USD will further take cues from the US bond yields and the broader risk sentiment, which should provide some impetus to the major.

Technical Outlook

From a technical perspective, the overnight rejection slide from a resistance marked by the top end of over a two-month-old ascending channel could be the first sign of bullish exhaustion. It, however, will be prudent to wait for solid follow-through selling before confirming that the GBP/USD pair has topped out in the near term.

In the meantime, the 200 DMA, currently around the 1.2135 region, is likely to protect the immediate downside ahead of the 1.2100 round figure. The latter should act as a pivotal point, which, if broken decisively, will set the stage for a deeper corrective pullback. Spot prices would then turn vulnerable to weaken further below the 1.2000 psychological mark and test the next relevant support near the 1.1935-1.1930 horizontal zone.

On the flip side, immediate resistance is pegged near the 1.2250-1.2255 region, above which the GBP/USD pair might aim back to reclaim the 1.2300 mark. The momentum could extend towards the multi-month peak, around the 1.2345 region. Some follow-through buying should allow bulls to seek to challenge the aforementioned trend-channel resistance, currently around the 1.2400 round figure.