GBP/USD Forecast: Bulls paused near 50% Fibo. amid escalating US-China tensions

• GBP/USD caught some aggressive bids on Tuesday amid a broad-based USD weakness.
• The British pound got an additional boost from some positive Brexit-related headlines.
• Worsening US-China relations revived the USD demand and capped any further gains.

The GBP/USD pair caught some aggressive bids and shot to two-week tops on Tuesday. The positive news of a potential COVID-19 vaccine and hopes for a V-shaped recovery for the global economy provided a strong lift to the global risk sentiment. The upbeat market mood was evident from a strong rally in the global equity markets and weighed heavily on the US dollar's perceived safe-haven status.

On the other hand, the British pound got a strong boost from reports that the EU is willing to drop its ‘maximalist’ approach on fisheries in the next round of Brexit negotiations with the UK, starting next week. This marked the first major concession from the bloc, which helped ease concerns about a deadlock in Brexit talks and prompted some short-covering move around the GBP pairs.

The momentum took along some near-term trading stops placed near the 50-day SMA and the 1.2300 round-figure mark, which further contributed to the pair's strong intraday rally of nearly 200 pips. The pair jumped back above mid-1.2200s, albeit persistent worries about worsening US-China relations kept a lid on any further move up amid extremely overbought conditions on intraday charts.

Diplomatic tensions between the world's two largest economies escalated further after the US President Donald Trump threatened a strong reaction to China's planned national security law for Hong Kong and added that it would be announced by the end of this week. Trump's warning helped revive the USD demand and led to a modest pullback from daily tops, which extended through the Asian session on Wednesday.

As investors keep a close eye on developments surrounding the US-China dispute, the pair, so far, has managed to hold above the 1.2300 mark and remains at the mercy of the broader market risk sentiment. In the absence of any relevant market-moving economic releases, either from the UK or the US, fresh Brexit-related headlines will play a key role in influencing the sterling and further contribute towards producing some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the overnight rally stalled near a resistance marked by the 50% Fibonacci level of the 1.2644-1.2076 recent downfall. The mentioned hurdle should now act as a key pivotal point for short-term traders. Some follow-through buying has the potential to lift the pair further beyond the 1.2400 round-figure mark, towards testing the next major hurdle near the 1.2445-50 supply zone.

On the flip side, the 1.2300 mark (38.2% Fibo. level) now seems to protect the immediate downside, which if broken might prompt some technical selling. The pair might then slide back to 50-day SMA resistance breakpoint, around the 1.2265-70 region. Failure to defend the mentioned resistance-turned-support might negate prospects for any further near-term appreciating move and turn the pair vulnerable to accelerate the slide back towards the 1.2200 round-figure mark.