GBP/USD Outlook: Bulls have the upper hand above 1.3800 mark

• Sustained USD selling bias pushed GBP/USD to multi-week tops on Friday.
• Rebounding US bond yields helped limit the USD losses and capped gains.
• The formation of an ascending channel on short-term charts favours bulls.

The GBP/USD pair built on the previous day's bullish breakout momentum through the very important 200-day SMA and gained follow-through traction on Friday amid a broad-based US dollar weakness. The momentum pushed the pair to near four-week tops, through faltered just ahead of the 1.3900 round-figure mark. The greenback prolonged its recent weakening trend and lost some additional ground following the disappointing release of the US monthly jobs report, which showed that the US economy added only 235K new jobs in August. This marked the smallest gains in seven months and was well below market expectations for a reading of 750K. The data forced investors to push back their expectations about the likely timing when the Fed will begin rolling back its pandemic-era stimulus and weighed on the greenback.

Meanwhile, additional details revealed that the US unemployment rate dropped from 5.4% in July to 5.2% during the reported month. This, along with stronger wage growth data, kept hopes alive for an imminent taper announcement by the end of this year. Market participants still anticipate the Fed to signal tapering in September, but now expect it to begin in December and likely end the QE by the middle of 2022. This was evident from a sharp intraday spike in the US Treasury bond yields, which helped limit any deeper USD losses and kept a lid on any further gains for the major. In fact, the yield on the benchmark 10-year US government bond shot back above 1.32%. This, along with worries about the fast-spreading Delta variant, provided a much-needed respite to the USD bulls and capped gains for the major.

Meanwhile, the UK and EU remain at odds on the way forward for the Northern Ireland Protocol. This was seen as another factor that acted as a headwind for the British pound and prompted some selling around the pair during the Asian session on Monday. Market participants now look forward to the release of the UK Construction PMI during the early European session. Any market reaction, however, is likely to be limited amid relatively thin liquidity conditions on the back of the Labor Day holiday in the US. This makes it prudent to wait for a strong follow-through selling before confirming that the recent strong rebound from the 1.3600 mark has run out of steam already.

Short-term technical outlook

Looking at the technical picture, the recent move up stalled near a resistance marked by the top boundary of over a two-week-old ascending channel. The mentioned barrier is currently pegged near the 1.3890-1.3900 area, which should act as a key pivotal point for short-term traders. From current levels, any subsequent slide now seems to find decent support near the 1.3800 mark, representing the 200-period SMA on the 4-hour chart.

This is closely followed by the ascending channel support, around the 1.3785 region, which if broken decisively might prompt some technical selling. The pair might then accelerate the fall towards the 1.3740-35 support zone before eventually dropping to the 1.3700 mark. The downward trajectory could further get extended and turn the pair vulnerable to slide further towards retesting August monthly swing lows, around the 1.3600 round figure.

On the flip side, immediate resistance is pegged near the 1.3875-80 area ahead of the 1.3900 mark. A convincing breakthrough will mark a fresh bullish breakout and push the pair further beyond the 1.3950-55 intermediate hurdle, allowing bulls to aim back to reclaim the key 1.4000 psychological mark.