GBP/USD Analysis: Bulls look to seize control amid falling COVID cases in UK

The GBP/USD pair gained strong positive traction on Monday and built on last week's solid rebound from the lowest level since early February. The momentum pushed the pair to over one week tops, beyond the 1.3800 mark and was sponsored by a combination of factors. In the absence of any fresh Brexit-related headlines, the British pound turned out to be one of the top-performing currencies and was supported by the declining trend in Delta variant infections in the UK. In fact, Britain recorded 24,950 new cases on Monday, down for the sixth successive day and well below the 54,674 reached on July 17.

Apart from this, a broad-based US dollar weakness provided an additional boost to the major. The ongoing spread of COVID-19 across the US fueled fears about renewed restrictions on business and acted as a headwind for the greenback. This, along with a sharp intraday fall in the US Treasury bond yields, further undermined the USD. However, the risk-on impulse in the US equity markets allowed the US bond yields to recover their early lost ground. In fact, the yield on the benchmark 10-year US government bond climbed back closer to the 1.30% threshold, albeit did little to impress the USD bulls.

The supporting factors helped offset dovish comments from the Bank of England Gertjan Vlieghe, saying that the recent inflation peak is likely to be temporary and that it will be appropriate to keep the current stimulus in place for several quarters at least. Nevertheless, the pair settled near the top end of its daily trading range and held comfortably above the 1.6800 mark through the Asian session on Tuesday. There isn't any major market-moving economic data due for release from the UK, while the US economic docket highlights the releases of Durable Goods Orders and the Conference Board's Consumer Confidence Index.

The key focus, however, will remain on a two-day FOMC monetary policy meeting, starting this Tuesday. The Fed will announce its decision on Wednesday and investors are expecting a clear answer about the crucial question of when the tapering will start. This will play a key role in influencing the near-term USD price dynamics and assist investors to determine the next leg of a directional move for the major.

Short-term technical outlook

From a technical perspective, the recent strong move up witnessed over the past one week or so stalled near the 1.3830-35 area or a resistance marked by the 38.2% Fibonacci level of the 1.4249-1.3572 downfall. Given that technical indicators on the daily chart have recovered from the negative territory, some follow-through buying beyond the mentioned hurdle will set the stage for further gains. The pair might then accelerate the momentum and aim to reclaim the 1.3900 mark. The latter coincides with the 50% Fibo. level, which if cleared decisively will be seen as a fresh trigger for bullish traders. The next relevant barrier is pegged near the 1.3950-60 area, above which bulls are likely to aim back to reclaim the key 1.4000 psychological mark.

On the flip side, any meaningful pullback below the 1.3800 mark might now find decent support near the 1.3775-70 horizontal zone. This is followed by support marked by the 23.6% Fibo. level, around the 1.3730 region. Failure to defend the mentioned support levels will suggest that the recent recovery move has run out of steam and prompt aggressive technical selling. The pair might then slide further towards testing intermediate support near the 1.3635-30 region before eventually dropping to the 1.3600 mark en-route monthly swing lows, around the 1.3570 area.