- GBP/USD witnessed an intraday turnaround from the 1.3800 confluence hurdle on Tuesday.
- The recent spike in new COVID-19 cases continued acting as a headwind for the British pound.
- A solid rebound in the US bond yields revived the USD demand and added to the selling bias.
The GBP/USD pair struggled to capitalize on its intraday gains to levels just above the 1.3800 mark and witnessed a turnaround from two-week tops touched earlier on Tuesday. The early uptick was sponsored by sustained US dollar selling bias, which fell to three-week lows amid fading hopes for an early Fed lift-off. During the highly anticipated speech at the Jackson Hole Symposium, Powell reassured the market that the Fed is in no hurry to raise interest rates. Powell also fell short of offering any specific timeline for the Fed’s tapering plan, though confirmed that the US central bank would begin rolling back its pandemic-era stimulus.
The USD remained depressed following the disappointing release of the Conference Board’s US Consumer Confidence Index, which dropped to 113.8 in August from 125.1 previous. This marked the lowest level since February and pointed to growing concerns about the Delta variant. The greenback was further pressured by comments from Cleveland Fed President Loretta Mester, which suggested that tapering would not begin imminently. Cleveland told Reuters that she is not yet convinced that the recent inflation satisfied the Fed’s price stability goal. That said, a combination of factors capped gains for the major, rather attracted sellers at higher levels.
The recent spike in new COVID-19 cases in the UK turned out to be a key factor that acted as a headwind for the British pound. According to the official figures released on Tuesday, another 32,181 people in Britain tested positive for COVID-19. Apart from this, a strong rebound in the US Treasury bond yields provided a much-needed respite to the USD bulls and contributed to the pair’s intraday fall of over 50 pips. The retracement slide extended through the Asian session on Wednesday and dragged the pair further below mid-1.3700s, or fresh weekly lows. Market participants now look forward to the final UK Manufacturing PMI for a fresh impetus.
Later during the early North American session, traders will take cues from the US economic docket – highlighting the release of the ADP report on private-sector employment and ISM Manufacturing PMI. This, along with the US bond yields, will influence the USD price dynamics and produce some trading opportunities around the major. The key focus, however, will remain on the closely-watched US monthly jobs report (NFP), scheduled for release on Friday.
Short-term technical outlook
Looking at the technical picture, the pair on Tuesday faced rejection near a confluence hurdle comprising of 200-day SMA and the 50% Fibonacci level of the 1.3984-1.3602 downfall. This should now act as a key pivotal point for short-term traders and help determine the next leg of a directional move. From current levels, the 23.6% Fibo. level, around the 1.3700-1.3690 region might protect the immediate downside. A convincing break below will negate any near-term positive bias and prompt some aggressive technical selling. The pair might then turn vulnerable and accelerate the fall further towards August monthly swing lows, around the 1.3600 round figure.
On the flip side, immediate resistance is pegged near the 1.3755-60 region ahead of the 1.3800 confluence hurdle. Bulls are likely to wait for a sustained strength beyond the latter before positioning for any meaningful upside. The pair might then surpass the 61.8% Fibo. resistance, near the 1.3840 area, before aiming to reclaim the 1.3900 mark. The momentum could further get extended towards the 1.3950-55 supply zone en-route the bearish double-top barrier, just ahead of the key 1.4000 psychological mark.
View more information: https://www.fxstreet.com/analysis/gbp-usd-outlook-overnight-rejection-near-13800-has-set-the-stage-for-further-weakness-202109010600