GBP/USD Analysis: Resurgent USD demand to cap gains, bulls await a move beyond 1.3600

  • The post-NFP USD selling pressure pushed GBP/USD to the 1.3600 neighbourhood on Friday.
  • Hawkish Fed expectations, surging US bond yields revived the USD demand and capped gains.
  • Receding Omicron fears, BoE rate hike bets might continue to act as a tailwind for the sterling.

The GBP/USD pair caught some fresh bids on Friday and climbed back closer to the 1.3600 mark, or the highest level since November 9 touched earlier last week. The British pound continued drawing support from hopes that the Omicron outbreak won't derail the UK economy and rising bets for further rate hikes by the Bank of England. Apart from this, the post-NFP US dollar selling provided an additional lift to the major.

The closely-watched US monthly jobs report showed that the economy added only 199K jobs in December as against 400K estimated. This, to a larger extent, was offset by the fact that the unemployment rate fell more than expected to 3.9% from 4.2% in November and wages reported another month of strong growth. The data reaffirmed expectations for an eventual Fed lift-off in March, which was evident from a fresh leg up in the US Treasury bond yields.

In fact, the yield on the benchmark 10-year Treasury note had touched the 1.80% threshold for the first time since January 2020. Adding to this, the US 2-year notes, which are highly sensitive to rate hike expectations along with 5-year notes, climbed to a two-year high and helped revive the USD demand on Monday. This, along with the worsening COVID-19 situation in Britain acted as a headwind for the sterling and capped the upside for the major.

In the absence of any major market-moving economic releases, either from the UK or the US, the USD price dynamics will continue to play a key role in influencing the major. Market participants now look forward to the Fed Chair Jerome Powell's testimony before Senate Banking Committee on Tuesday. Apart from this, the focus will be on other important US macro data, the latest consumer inflation figures on Wednesday and monthly Retail Sales data on Friday.

Technical outlook

From a technical perspective, the pair has acceptance above the 100-day SMA and seems poised to build on the momentum beyond the 61.8% Fibonacci level of the 1.3834-1.3161 fall. Some follow-through buying beyond the 1.3600 mark will reaffirm the bullish bias and set the stage for a move towards testing a downward-sloping trend-line resistance, around the 1.3675 region. The mentioned barrier extends from July 2021 swing high and should act as a key pivotal point for short-term traders.

On the flip side, the 100-day SMA, currently around mid-1.3500s, is likely to protect the immediate downside. Any subsequent decline might still be seen as a buying opportunity and remain limited near the key 1.3500 psychological mark, which coincides with the 50% Fibo. level. A convincing break below might prompt some technical selling and accelerate the slide towards the 1.3460-55 region en-route the 1.3430 area. This is followed by the 38.2% Fibo. level/50-day SMA confluence support near the 1.3400 mark, which if broken decisively might shift the bias back in favour of bearish traders.

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