Regains initial lost ground, upside appears limited amid strengthened USD

• GBP / USD reversed an intraday slide to levels above 1.3800 amid a modest USD pullback from highs.
• Aggressive Fed expectations acted as a tailwind for the USD and kept any significant gains in check.
• A move past 1.3900 is needed to validate a move towards the upward resistance of the trend channel.

GBP / USD recovered more than 40 pips from levels below 1.3800 and climbed to the upper end of its daily trading range around the 1.3835-40 region heading into the American session.

The risk appetite boost in equity markets, coupled with a modest pullback in US Treasury yields, kept the intra-day rally in the safe-haven dollar limited to two-week highs. This, in turn, was seen as a key factor that extended some support to the GBP / USD pair.

That said, expectations of an imminent announcement from the Fed should continue to act as a tailwind for the USD and limit any significant gains for the GBP / USD pair. This makes it wise to wait for some follow-up purchases before positioning yourself for any additional profit.

Looking at the technical picture, the recent bounce to 1.3600 has been along an upward sloping channel. The bulls, however, have struggled to capitalize on the move and repeatedly failed before 1.3900, which should now act as a crucial point for the GBP / USD pair.

Meanwhile, the technical indicators on the hourly / daily charts remain slightly positive, but have yet to gain any significant traction. This further warrants some caution for bullish traders amid the absence of relevant economic data moving the market, be it from the UK or the US.

From current levels, any subsequent move up could continue to face stiff resistance near the 1.3885-90 region. A sustained move further, leading to a further advance, the 1.3900 level will set the stage for an extension of a three-week-old upward trajectory.

GBP / USD could accelerate momentum towards an intermediate hurdle, around the 1.3930 region en route to the 1.3955-60 bid zone. Momentum could eventually push the pair towards the upper bound of the ascending channel, currently near the key psychological level of 1.4000.

On the other hand, the round 1.3800 level now appears to protect the immediate decline ahead of the channel’s ascending support, around the 1.3775-70 region. A convincing breakout below could lead to aggressive technical selling and make GBP / USD vulnerable.

The next relevant support is set near the horizontal zone 1.3730-25 and 1.3700. Some follow-up selling below the 1.3680-75 region should pave the way for a drop towards August’s monthly lows, around the 1.3600 round level.

GBP / USD chart 4 hours

Technical levels to observe