GBP/USD struggles to stay above 1.42 as bulls take a break

The GBP/USD pair gained more than 200 pips on Wednesday to refresh its best level since the Brexit referendum back in June 2016 at 1.4240. With major pairs going into a consolidation phase in the late NA session following a highly volatile day, the pair is making a technical correction. As of writing, the pair was trading at 1.4195, where it was still up 1.35%, or 190 pips, on the day.

Earlier today, the data from the UK showed that the unemployment rate remained unchanged at 4.3% in December in line with the market estimates despite a small increase seen in the claimant count rate from 2.3% to 2.4%. Although it wasn't easy to assess the market reaction to the data with every USD denominated currency pairs recording large gains, the sharp drop seen in the EUR/GBP pair suggested that the data had a positive impact on the GBP's price action.

On the other hand, the US Dollar Index refreshed its multi-year lows on Wednesday pressured by the U.S. Treasury Secretary Steven Mnuchin comments, who argued that a weaker USD was good for the economy as it would allow imports to increase. After failing to break above the 95 mark back in November, the US Dollar Index remained under a constant bearish pressure with investors failing to find any reasons to bet on a stronger buck.

On Thursday, the only noteworthy data from the UK will be the CBI Distributive Trades Survey. Later in the day, weekly jobless claims and wholesale inventories data from the US will be looked upon for fresh impetus. However, even if these data beat market expectations, a meaningful recovery seems unlikely for the greenback in the near-term.

Technical outlook

Valeria Bednarik, American Chief Analyst at FXStreet, writes, "the 4 hours chart shows that technical indicators have lost their upward strength in extreme overbought territory, but with the pair posting higher highs, seems the risk remains skewed to the upside. The price moved away from a bullish 20 SMA, currently at 1.3960, after hovering around the indicator for almost a week, further supporting the bullish case of the pair."

"A downward corrective movement, however, can't be dismissed, particularly if US data beat expectations, but once the dust settles, buyers will likely reappear. The immediate support is the 1.4100 figure, ahead of 1.4050, an early intraday high, followed by the 1.3990 price zone. An upward acceleration through 1.4160 level, on the other hand, will result in the pair reaching 1.4200 during the US session," Bednarik further adds.