GBP/USD Forecast: Losing bullish momentum amid Brexit jitters, escalating US-China tensions

• Sustained USD selling lifted GBP/USD to over one-month tops on Wednesday.
• The increasing risk of a no-deal Brexit undermined the sterling and capped gains.
• Worsening US-China relations led to some follow-through pullback on Thursday.

The GBP/USD pair gained some follow-through traction for the fifth consecutive session on Wednesday and shot to fresh one-month tops. The upbeat market mood remained well supported by growing hopes for global economic recovery and continued denting the US dollar's relative safe-haven, which, in turn, was seen as one of the key factors driving the pair higher. On the economic data front, the final version of the UK Services PMI was revised higher to 29.0 for May as against 27.8 estimated earlier, albeit did little to provide any meaningful impetus to the British pound.

From the US, the ADP report showed that private-sector employment in the US declined by 2.76 million in May as compared to consensus estimates pointing to drop of 9 million. Adding to this, the US ISM Non-Manufacturing PMI came in at 45.4 for May as compared to 44.0 anticipated but once again failed impress the USD bulls. Despite the positive factors, the pair struggled to find acceptance above the 1.2600 mark and witnessed some intraday profit-taking amid rising odds of hard Brexit.

The market concerns resurfaced on Wednesday after the Bank of England Governor Andrew Bailey reportedly told banks to step up plans for the UK to leave the European Union without a trade deal. This comes on the back of the lack of progress in the ongoing Brexit talks and took its toll on the sterling. This coupled with worries about worsening US-China relations drove some haven flows towards the greenback and contributed to the pair's intraday pullback of around 40-45 pips.

Relations between the world's two largest economies soured further after the US suspended passenger flights of four Chinese airlines to and from the United States effective from June 16. The move was in retaliation to China's decision to bar American carriers from re-entering China. Worries about a further escalation in the US-China tensions kept a lid on the recent optimism and led to the pair's follow-through retracement during the Asian session on Thursday.

The pair was last seen trading below mid-1.2500s. In the absence of any major market-moving economic releases from the UK, the incoming Brexit-related headlines will play a key role in influencing the sentiment surrounding the pound. Later during the early North American session, the release of the Initial Weekly Jobless Claims data from the US, along with broader market risk sentiment might contribute to produce some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the pair's inability to capitalize on the recent positive move and a subsequent pullback point to the emergence of some fresh selling pressure. However, it will be prudent to wait for some follow-through weakness below the key 1.2500 psychological mark before positioning for a slide towards the 1.2465 level. The latter coincides with the 23.6% Fibonacci level of the 1.1412-1.2648 move up, which if broken might be seen as a fresh trigger for bearish traders.

On the flip side, the 1.2600 mark might continue to act as immediate support, above which the pair is likely to aim to retest the very important 200-day SMA, around the 1.2640-50 region. A sustained strength beyond the mentioned barrier might negate any near-term bearish bias and pave the way for a further near-term appreciating move. The pair might then accelerate the momentum towards reclaiming the 1.2700 round-figure mark en-route the next major hurdle near the 1.2770 horizontal zone.