GBP/USD Outlook: Move beyond 1.3700 mark should pave the way for additional gains

  • A combination of supporting factors assisted GBP/USD to gain strong traction on Tuesday.
  • BoE’s Bailey downplayed negative rate speculations and provided a strong lift to the GBP.
  • Retreating US bond yields, bullish sentiment weighed on the USD and remained supportive.

The GBP/USD pair built on the previous day's goodish bounce from near two-week lows, around mid-1.3400s and gained strong positive traction on Tuesday. The intraday momentum picked up pace after the Bank of England Governor Andrew Bailey downplayed speculations on negative interest rates. During his online speech to the Scottish Chambers of Commerce, Bailey said that there are a lot of issues with negative interest rates and that it was too soon to reach any conclusion about the need for future stimulus. Bailey's comments indicated that the BoE is likely to wait and see how the economy reacts to Brexit and the third lockdown in the UK before deciding on anything.

The pair rallied nearly 200 pips from the intraday swing lows near the key 1.3500 psychological mark and was further supported by the emergence of some selling around the US dollar. The recent strong rally in the US Treasury bond yields started losing steam on Tuesday in reaction to strong demand at a $38 billion 10-year auction and dovish comments from Fed officials. Policymakers toned down the talk of tapering the asset purchase program and reiterated that the monetary policy is going to stay accommodative. This, along with the underlying bullish sentiment in the financial markets, further weighed on the safe-haven greenback and provided an additional boost to the pair.

The global risk sentiment remained well supported by expectations for a more aggressive US fiscal spending in 2021. Meanwhile, the rollout of vaccines for the highly contagious coronavirus disease has been fueling hopes over a strong global economic recovery and was seen as another factor boosting investors' confidence. The optimism, to a larger extent, helped offset worries about the continuous surge in coronavirus cases and the imposition of strict lockdown restrictions to fight the new variants. Nevertheless, the USD ended the day in the red, snapping three consecutive days of the winning streak and remained depressed through the Asian session on Wednesday.

The pair moved back closer to multi-year tops, with bulls still awaiting a sustained move beyond the 1.3700 round-figure mark. There isn't any major market-moving economic data due for release from the UK on Wednesday. Meanwhile, the US economic docket highlights the release of the latest consumer inflation figures. Apart from this, the broader market risk sentiment and the US bond yields will influence the USD price dynamics. This, in turn, might provide some impetus to the major and allow traders to grab some short-term opportunities.

Technical outlook

From a technical perspective, the overnight strong positive move pushed the pair beyond a short-term ascending trend-line resistance. A subsequent move beyond the 1.3700 mark will be seen as a fresh trigger for bullish traders and pave the way for additional gains. The pair might then accelerate the momentum towards the 1.3775-80 intermediate resistance before aiming to reclaim the 1.3800 mark for the first time since April 2018.

On the flip side, any meaningful pullback below the 1.3655-50 region now seems to attract some dip-buying and remain limited near the trend-line resistance breakpoint, around the 1.3600 mark. Failure to defend the mentioned resistance-turned-support might prompt some technical selling and drag the pair back towards the 1.3560-55 horizontal support. This is followed by support near the 1.3520-15 region, which if broken decisively will negate any near-term positive bias. 


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