GBP/USD Outlook: Move beyond 1.3700 needed for any further bullish extension

• A combination of factors prompted some selling around GBP/USD on Monday.
• COVID-19 jitters continued underpinning demand for the safe-haven greenback.
• The sterling was weighed down by the imposition of fresh restrictions in the UK.

The GBP/USD pair extended the previous session's retracement slide from multi-year tops and witnessed some selling through the first half of the trading action on Monday. Investors remain concerned about the potential economic fallout from the continuous surge in the number of new COVID-19 cases. This was evident from a cautious mood around the equity markets, which benefitted the safe-haven US dollar and was seen as a key factor exerting pressure on the major for the second consecutive session. The British pound was further pressured by weekend news related to more travel restrictions in the UK.

That said, the optimism over the rollout of COVID-19 vaccines helped limit any further losses. In fact, the UK vaccine deployment minister, Nadhim Zahawi said on Monday that the rollout is going well and everyone will be offered a vaccine by September. This comes amid hopes for a more aggressive US fiscal spending in 2021, which remained supportive of the underlying bullish tone in the global financial markets. This, in turn, assisted the pair to rebound around 80 pips from daily swing lows and gain some follow-through traction, beyond the 1.3600 mark during the Asian session on Tuesday.

In the absence of any major market-moving economic releases, either from the UK or the US, the pair remains at the mercy of the USD price dynamics. Apart from this, traders might further take cues from developments surrounding the coronavirus saga. That said, investors are likely to turn cautious ahead of the President-elect Joe Biden's inaugural ceremony on Wednesday. Apart from this, Treasury Secretary nominee Janet Yellen’s confirmation hearing will influence the USD price dynamics and contribute to produce some trading opportunities. This makes it prudent to wait for some strong follow-through buying before positioning for any further appreciating move.

Short-term technical outlook

From a technical perspective, the pair on Monday managed to find decent support just ahead of the 1.3500 psychological mark. The mentioned level coincides with the 38.2% Fibonacci level of the 1.3188-1.3710 positive move, which should now act as a key pivotal point for short-term traders. In the meantime, any subsequent strength is likely to confront resistance near 100-hour SMA, currently near the 1.3625 region. A sustained move beyond will negate any near-term bearish bias and allow bulls to make a fresh attempt to clear multi-tops barrier, around the 1.3700-1.3710 supply zone.

On the flip side, the 23.6% Fibo. level, around the 1.3585 region, now seems to act as immediate support. This is closely followed by ascending trend-line support, near the 1.3560 region, which if broken decisively should pave the way for additional weakness. That said, bearish traders might still wait for a sustained breakthrough the 1.3500 mark (38.2% Fibo. level) before positioning for any meaningful downside in the near-term.