- GBP/USD refreshed 34-month tops, beyond 1.4200 during the Asian session on Wednesday.
- Overstretched conditions prompted some selling at higher levels and led to a modest pullback.
- Investors now eye BoE's Monetary Policy Report Hearing before the UK Treasury Committee.
The GBP/USD pair prolonged its recent bullish trajectory and surged to fresh 34-month tops, beyond the 1.4200 mark during the Asian session on Wednesday. The momentum marked the fifth consecutive day of a positive move and was supported by a combination of factors. The sterling remained well supported by the impressive pace of COVID-19 vaccinations in Britain, the UK government's plan to ease current lockdown measures and Tuesday's upbeat UK employment details. UK Prime Minister Boris Johnson unveiled a new four-step plan to end restrictions by 21 June and lifted hopes for a swift UK economic recovery. On the economic data front, the latest UK jobs report showed that Claimant Count unexpectedly dropped by 20.0K in January as against consensus estimates pointing to an increase of 35K. Adding to this, the previous month's reading was also revised down to -20.4K, while the unemployment rate matched market expectations and edged higher to 5.1%.
On the other hand, the US dollar struggled to capitalize on the previous day's goodish intraday bounce from six-week lows and was pressured by Fed Chair Jerome Powell's dovish remarks. During the first day of his semi-annual testimony before the Congress, Powell reiterated that interest rates will remain low and the Fed will keep buying bonds to support the US economic recovery. The comments triggered a modest pullback in the US Treasury bond yields and exerted some pressure on the greenback. Apart from this, the underlying bullish tone in the financial markets further dented the USD's relative safe-haven status against its British counterpart. The global risk sentiment remained well supported by optimism over a strong global economic recovery amid the progress in COVID-19 vaccinations and a massive US fiscal spending plan. In fact, House Majority Leader Steny Hoyer said that a vote on the $1.9 trillion stimulus package will be held on Friday.
The pair touched an intraday high level of 1.4243, albeit overstretched conditions on short-term charts prompted some profit-taking at higher levels. The pair was last seen trading around the 1.4175 region as market participants now look forward to a scheduled speech by the Bank of England Chief Economist Andy Haldane for some impetus. Later during the early North American session, the BoE Governor Andrew Bailey and other MPC members will testify before the Treasury Select Committee, which, in turn, might influence the pound. In the absence of any major market-moving economic releases, Powell's second day of testimony to the Senate Banking Committee will also be looked upon for some meaningful trading opportunities.
Short-term technical outlook
From a technical perspective, Wednesday’s strong positive move pushed the pair beyond a short-term ascending trend-channel resistance and might have already set the stage for additional gains. That said, overbought RSI on the daily chart warrants some caution for bullish traders. This, in turn, makes it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move. In the meantime, the 1.4100 round-figure mark is likely to protect the immediate downside. Any subsequent fall could be seen as a buying opportunity and remain limited near the 1.4055-50 horizontal zone. Failure to defend the mentioned support levels might accelerate the corrective slide and drag the pair back towards the key 1.4000 psychological mark.
On the flip side, the 1.4200 round-figure mark now seems to act as an immediate resistance ahead of the 1.4240-45 region (near three-year tops). Some follow-through buying has the potential to push the pair further towards the 1.4275-80 intermediate resistance en-route the 1.4300 round-figure mark. The momentum could further get extended towards April 2018 swing highs, around the 1.4375 region.
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