GBP/USD Analysis: Upside seems limited amid Brexit-related uncertainties

• GBP/USD gains some traction on Tuesday in the wake of some aggressive USD selling.
• The Fed’s surprise decision to cut rates by 50bps weighed heavily on the greenback.
• Fears of a no-deal Brexit kept a lid on any strong gains, at least for the time being.

The GBP/USD pair once again some resilience below mid-1.2700s and staged a goodish intraday rally of over 100 pips on Tuesday. Following a subdued move through the major part of Tuesday's trading action, the pair gained some traction in the wake of some aggressive US dollar selling, triggered by the Fed's surprise move to cut interest rates by 50bps.

The US central bank delivered an emergency cut ahead of the FOMC meeting on March 18 to cushion the potential impact from the spread of coronavirus on the economy. In the press conference that followed the statement, the Fed Chairman Jerome Powel said that the fundamental of the US economy remained strong but the coronavirus outbreak posed evolving risks to the outlook.

The yield on the benchmark US 10-year government bond broke the 1% handle to a new record low and added to the intense bearish pressure surrounding the greenback. The pair jumped back above the 1.2800 round-figure mark, albeit struggled to capitalize on the move and remained below the overnight swing high amid persistent uncertainty about the future UK-EU trade relationship.

Meanwhile, expectations that the Bank of England might also cut interest rates at its upcoming meeting on March 26 further collaborate towards capping gains. The lack of any strong follow-through buying led to a range-bound trading action through the Asian session on Wednesday. Market participants now look forward to the final UK Services PMI for some short-term impetus.

Later during the early North-American session, the US economic docket – featuring the releases of the ADP report on private-sector employment and the ISM Non-Manufacturing PMI – might influence the USD price dynamics and further contribute towards producing some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the overnight bounce might have negated the prospects for a probable drop to the 1.2700 mark. Hence, weakness back below the 1.2800 mark might continue to attract some dip-buying near the 1.2740-25 region. That said, failure to defend the mentioned support and a subsequent slide below the 1.2700 round-figure mark might now turn the pair vulnerable to accelerate the fall further towards testing its next major support near the 1.2645 horizontal zone.

Conversely, bulls are likely to wait for some strong follow-through buying before positioning for any further near-term appreciating move. Momentum beyond mid-1.2800s is likely to confront some fresh supply near 1.2875-80 region. Some follow-through buying, leading to a sustained strength above the 1.2900 handle might negate any near-term bearish bias and set the stage for a move towards reclaiming the key 1.30 psychological mark. The latter coincides with 50-day SMA and should act as a key pivotal point for the pair’s next leg of a directional move.