GBP/USD analysis: Recovers on stronger UK wage growth data, Brexit uncertainties capped gains

A combination of supporting factors helped the GBP/USD pair to regain positive traction on Tuesday and recover a major part of the previous session's slide to multi-day lows. The British Pound got a goodish lift the latest UK employment report came in to show that average earnings excluding bonus recorded a strong yearly growth of 3.4% during the three months to April as against a slight deceleration anticipated. 

Adding to this, earnings including bonus showed a slight deceleration but was still better than consensus estimates, which coupled with hawkish BoE-speak remained supportive of the intraday positive move. The BoE MPC member - Michael Saunders reiterated that the UK could see more rate hikes and at a faster pace than the curve implies if Brexit is smooth. 

On the other hand, the US Dollar struggled to capitalize on Monday's recovery move and was further weighed down by softer US Producer Price Index, rising 1.8% on a yearly basis as compared to 2.0% expected. This was followed by the US President Donald Trump's efforts to talk down the domestic currency and complain that the Fed was keeping interest rates way too high, which exerted some additional downward pressure on the greenback and lifted the pair to an intraday high level of 1.2730. 

Despite the positive triggers, the pair remained capped below the 1.2745-50 supply zone amid persistent Brexit uncertainty, especially after the European Commission reiterated its stance that there will be no Brexit renegotiation even with a new UK Prime Minister. Meanwhile, Boris Johnson, who remains a leading candidate to be the next British PM, has already made it clear that the UK must leave the EU on October 31st and continued fueling fears of a no-deal split.

Market concerns were evident from a subdued price action through the Asian session on Wednesday. Apart from the incoming UK political or Brexit headlines, market participants on Wednesday will confront the release of the latest US consumer inflation figures, which might contribute towards producing some short-term trading opportunities later during the early North-American session.

From a technical picture, nothing seems to have changed much for the pair and the 1.2745-50 region might continue to act as an immediate strong resistance, which if cleared decisively might trigger a near-term short-covering move. The recovery momentum could then lift the pair even beyond the 1.2800 mark towards its next major hurdle near the 1.2860-65 region.

On the flip side, the 1.2655-50 region now seems to have emerged as an immediate strong support and should help limit any meaningful weakness back below the 1.2700 handle. However, a convincing break through the mentioned support would indicate the resumption of the prior well-established bearish trend and turn the pair vulnerable to accelerate the slide further towards challenging the 1.2600 handle before eventually dropping to test multi-month lows, around the 1.2560 region.