GBP/USD Outlook: Stage seems set for a move to reclaim 1.3800 mark

• Sustained USD selling bias pushed GBP/USD to fresh 32-month tops on Monday.
• The prevalent upbeat market mood continued undermining the safe-haven USD.
• Bullish set-up supports prospects for a further appreciating move for the major.

The British pound remained supported by the passage of post-Brexit trade deal in the UK Parliament. This, coupled with the prevalent bearish sentiment surrounding the US dollar, allowed the GBP/USD pair to build on its bullish breakout momentum through the 1.3620-25 resistance zone. The USD Index remained depressed near multi-year lows amid the increasing likelihood of additional US financial aid package and expectations that the Fed will keep rates lower for a longer time.

Meanwhile, hopes for a strong global economy in 2021 remained supportive of the prevalent risk-on environment. This was seen as another factor that further undermined the greenback's relative safe-haven status. The already strong risk sentiment got an additional boost after UK regulators approved the use of AstraZeneca/Oxford coronavirus vaccine. Thursday's better-than-expected release of US Initial Weekly Jobless Claims also did little to provide any respite to the greenback.

The sterling seemed rather unaffected by concerns about the exclusion of the crucial services sector – which make up 80% of the British economy – from the Brexit agreement. Even an unprecedented level of COVID-19 infection and the imposition of stricter lockdown/travel restrictions in the UK also did little to hold back bullish traders. This was evident from the emergence of some dip-buying on the first trading day of 2021 and a subsequent move to the highest level since April 2018.

The pair was last seen hovering just below the 1.3700 mark as market participants now look forward to the final Manufacturing PMI prints from the UK and the US for a fresh impetus. Apart from this, developments surrounding the coronavirus saga will play a dominant role in driving the broader market risk sentiment. This, in turn, might influence the USD price dynamics and further contribute to produce some meaningful trading opportunities around the major.

Short-term technical outlook

From a technical perspective, a sustained move beyond the 1.3620-25 region (previous 2020 highs) might have already set the stage for an extension of the recent bullish trajectory. With technical indicators on the daily chart still far from being in the overbought territory, a subsequent move towards the next major hurdle, around the 1.3745-50 region, looks a distinct possibility. The momentum could further get extended towards the 1.3780-85 intermediate resistance before the pair eventually aims to reclaim the 1.3800 mark.

On the flip side, any meaningful pullback could attract some dip-buying and remain limited near the 1.3625-20 resistance breakpoint. Failure to defend the mentioned resistance-turned-support might prompt some technical selling and accelerate the corrective slide towards the key 1.3500 psychological mark. Any further weakness is more likely to find decent support near last week's swing low, around the 1.3430-25 region, which should act as a strong near-term base for major and a key pivotal point for the next leg of a directional move.