GBP/USD Analysis: Bulls turn cautious amid further COVID-19 restrictions in UK

• Sustained USD selling bias allowed GBP/USD to gain strong positive traction on Wednesday.
• The UK Parliament approved the Brexit deal and pushed the pair to fresh 32-month tops.
• COVID-19 jitters kept a lid on any further gains amid typical year-end thin trading volumes.

The GBP/USD pair gained some strong follow-through traction on Wednesday and jumped back above the 1.3600 mark amid the heavily offered tone surrounding the US dollar. Investors looked past the effective rejection of a measure to raise the direct payments to most US households to $2,000 and remain convinced about the likelihood of additional US financial aid. This, along with hopes for a strong global recovery in 2021, remained supportive of the upbeat market mood. The already strong risk sentiment got an additional boost after UK regulators approved the use of AstraZeneca/Oxford coronavirus vaccine. This, in turn, was seen as a key factor that continued undermining the safe-haven greenback and driving the pair higher.

The British pound largely shrugged off an unprecedented level of COVID-19 infection across the UK. Several areas of the country went into the toughest tier-4 restrictions on Wednesday after the UK reported over 50,000 news cases for the second day in a row. The positive momentum also seemed rather unaffected by the fact that the Brexit agreement excluded the crucial services sector, which makes up 80% of the British economy. In the latest Brexit-related development, UK lawmakers approved the post-Brexit trade deal with the European Union and reports indicate that the accord has been granted royal assent by the Queen. In a knee-jerk reaction to the news, the pair shot to fresh 32-month tops, around mid-1.3600s, during the Asian session on Thursday.

The uptick, however, lacked any strong follow-through buying, instead ran out of the steam and forced the pair erased its early gains. The pair now seems to have stabilized just above the 1.3600 mark and is more likely to consolidate in a range amid typical year-end thin trading volumes. There isn't any major market-moving economic data due for release from the UK. Meanwhile, the US economic docket highlights the only release of the usual Initial Weekly Jobless Claims. This, in turn, leaves the pair at the mercy of the USD price dynamics. That said, developments surrounding the coronavirus saga might influence the broader market risk sentiment and infuse some volatility, allowing trades to grab some meaningful opportunities on the last day of the year.

Short-term technical outlook

From a technical perspective, a move beyond a double-top resistance near the 1.3620-25 region could be seen as a fresh trigger for bullish traders. However, the pair's inability to capitalize on the move warrants some caution before placing aggressive bullish bets. Nevertheless, the pair still seems poised to prolong its recent upward trajectory and aim to reclaim the 1.3700 mark. Some follow-through buying has the potential to lift the pair further towards the next major hurdle near the 1.3745-50 region.

On the flip side, any meaningful pullback below the 1.3600 mark might now find decent support near mid-1.3500s. Failure to defend the mentioned support might prompt some long-unwinding and turn the pair vulnerable to accelerate the corrective slide further below the key 1.3500 psychological mark, towards retesting weekly swing lows support near the 1.3430-25 region.