GBP/USD advances firmly above 1.3500 amid an upbeat market sentiment

• The British pound pares Monday’s losses, up some 0.40%.
• The US Dollar Index advances for the second consecutive day of 2022 but fails to boost the greenback vs. cable.
• US T-bond yields march firmly towards the 1.70% threshold.
• GBP/USD is tilted to the downside and will face strong resistance around the 1.3550-70 area.

The British pound advances for the first time of the week, trading at 1.3525 at the time of writing. European stock indices and US equity futures portrayed an upbeat market mood, Covid-19 Omicron variant woes wane, while investors assess US central bank tightening in the year, as shown by money market futures expecting three rate hikes in 2022.

In the overnight session, the GBP/USD dipped as low as 1.3460, immediately bouncing off Tuesday’s daily low and pushing through the 1.3500 figure, stalling the upward move around the R1 daily pivot point at 1.3531.

In the meantime, the US Dollar Index, which tracks the greenback’s performance against a basket of its rivals, advances 0.11% sits at 96.32. That happens on the back of rising US 10-year Treasury yields, closing to the 1.67% threshold, underpinning the greenback, whereas the GBP/USD pair pares Monday’s losses on the back of risk appetite, and probably the US hitting a million of Covid-19 cases on Monday, as the country gets struck by the Omicron variant wave.

During the European session, the UK economic docket featured the Markit/CIPS Manufacturing PMI for December, which came at 57.9, lower than the 57.6 estimated by analysts. 

Some minutes ago, in the US economic docket, the Institute of Supply Manufacturing reported that the Manufacturing PMI for December in its final reading came at 58.7, lower than the 60 estimated by analysts. At the same time, the JOLTS Job Openings came at 10.562M, lower than the 11.075M.

The market reacted to the upside at the data, jumping some 11 pips, short of the confluence of the 50-DMA and a downslope bearish trendline.

GBP/USD Price Forecast: Technical outlook

The GBP/USD is in a downtrend, as depicted by the daily chart, though the trend paused slightly. At press time, the pair is trapped within the 50 and the 100-day moving averages (DMAs) with the shortest time-frame one below the longer time frame. In fact, the 100-DMA intersects with a downslope trendline drawn from May 2021 cycle highs, which lies around 1.3558, which would be a difficult resistance area to overcome.

In the event of breaking above the aforementioned, the following line of defense for USD bulls would be 1.3600. A break above that level would expose the November 4 daily high at 1.3698, followed by the 200-DMA at 1.3743.

On the flip side, the first support would be 1.3500. The breach of the latter could pave the way for further downside action, with the January 3 daily low at 1.3431, followed by the 50-DMA as the first support at 1.3408.