Flirt with daily lows just below 1.3800

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  • GBP / USD faces rejection near a confluence hurdle amid a modest pickup in USD demand.
  • Rising expectations for a BoE rate hike in 2021 should help limit any deeper losses for the British pound.
  • The technical setup favors the bulls and supports the prospects for further short-term gains.

GBP / USD saw some selling on Thursday and fell just below the 1.3800 level during the first half of the European session, although it lacks any follow-up.

Risk aversion in the markets, amid fresh concerns about a credit crunch in China’s real estate sector, has helped the US dollar stage a modest rebound from three-week lows. This, in turn, has been seen as a key factor that has put some downward pressure on the GBP / USD pair.

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The pair, for now, appears to have broken a two-day winning streak, although the decline is likely to remain limited. Moderation in expectations of a Fed rate hike, coupled with growing acceptance that the BoE will raise rates before the end of this year, should act as a tailwind for the GBP / USD pair.

From a technical perspective, the recent strong move from near the 1.3400 level has stopped near the very important 200-day SMA. This coincides with the upper bound of a three-week-old ascending channel and a downtrend line that runs from the end of July.

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The aforementioned confluence hurdle, just before 1.3850, should now act as a key turning point for short-term investors. A convincing breakout will set the stage for a further short-term bullish move and allow the bulls to again aim to regain the round 1.3900 level.

Meanwhile, bullish technical indicators on the daily chart support prospects for a further move to the upside in the near term. That said, the bulls could still wait for a sustained breakout above the aforementioned confluence hurdle, just before 1.3850, before opening aggressive positions.

The GBP / USD pair could then accelerate the momentum and once again aim to regain the 1.3900 level. Some continuation buying beyond the September monthly highs around the 1.3915 region will be seen as a new trigger for the bulls and will push the pair towards the 1.3960-65 region.

On the other hand, any significant drop below the round 1.3800 level could still be seen as a buying opportunity. This should help limit the decline near the lows of the previous day, around the 1.3735-30 area, which is followed by the 1.3700 level, or the lower end of the ascending channel.

A convincing breakout from that level will negate the upside bias and could turn the bias in favor of the bears and lead to aggressive technical selling. The subsequent decline has the potential to drag GBP / USD to intermediate support near 1.3650, on its way to the round 1.3600 level.

GBP / USD daily chart

GBP / USD technical levels

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