GBP/USD Outlook: Bias shifts in favour of bearish traders amid resurgent USD demand

• Resurgent USD demand prompted some heavy selling around GBP/USD on Thursday.
• Surging US bond yields, the risk-off mood provided a strong boost to the safe-haven USD.
• The near-term technical set-up might have already shifted in favour of bearish traders.

The GBP/USD pair witnessed some aggressive long-unwinding trade on Thursday and erased its weekly gains to the highest level since April 2018. A combination of factors allowed the US dollar to make a solid comeback, which, in turn, was seen as a key factor behind the pair's corrective fall. The continuous surge in the US Treasury bond yields remained the focal point in the market amid the prospects for a strong global economic recovery. The impressive pace of COVID-19 vaccinations, along with the progress on the US President Joe Biden's proposed $1.9 trillion pandemic relief package has been fueling the reflation trade. The developments continued pushing the yields higher and benefitted the greenback.

Meanwhile, the runaway rally in the US bond yields raised fears about distressed selling in other assets and triggered a fresh wave of the global risk aversion trade. This was evident from a sharp pullback in the equity markets, which provided an additional boost to the USD's relative safe-haven status against its British counterpart. Apart from this, Thursday's mostly upbeat US economic releases remained supportive of the strong bid tone surrounding the greenback. In fact, the US fourth-quarter GDP growth was revised higher to 4.1% annualized pace from 4.0% reported previously. Adding to this, Durable Goods Orders for January and Initial Jobless Claims also surpassed market expectations by a big margin.  

The pair tumbled around 180 pips from daily swing highs and weakened further below the key 1.4000 psychological mark during the Asian session on Friday. The prevalent risk-off environment forced investors to take refuge in the safe-haven USD and exerted some follow-through pressure on the major. There isn’t any major market-moving economic data due for release from the UK, leaving the pair at the mercy of the USD price dynamics. The US economic docket features the releases of Core PCE Price Index, Personal Income/Spending data, Goods Trade Balance and Chicago PMI. This, along with the broader market risk sentiment and the US bond yields, will influence the USD and produce some trading opportunities on the last day of the week.

Short-term technical outlook

From a technical perspective, the overnight slump below a three-week-old ascending trend-line support could be seen as the first sign that the pair has topped out in the near-term. A subsequent fall below the 38.2% Fibonacci level of the post-BoE strong positive move now seems to have shifted the near-term bias in favour of bearish traders. Hence, some follow-through weakness towards the 50% Fibo. level, around the 1.3900 round-figure mark, looks a distinct possibility. A sustained break through the mentioned support should pave the way for an extension of the corrective slide towards mid-1.3800s en-route the 61.8% Fibo. level, around the 1.3820-15 region and the next relevant support near the 1.3785-80 horizontal support.

On the flip side, the 1.3985 region (38.2% Fibo. level) now seems to act as immediate resistance. Any further recovery beyond the 1.4000 mark might now be seen as a selling opportunity and runs the risk of fizzling out rather quickly near the 1.4035 supply zone. This, in turn, should now act as a strong barrier, which if cleared decisively will negate any near-term bearish bias.