GBP/USD bearish trading opportunity – Conservative Contest may trigger a move

GBP/USD has been hovering above uptrend support.
The first round of the Conservative contest may trigger volatility.
If the pair breaks lower, there is significant downside potential.

GBP/USD has been trading above an uptrend support line that runs from early June, was formed early this week, and confirmed earlier today. It currently stands at 1.2660.

If it breaks lower, weak support awaits at 1.2640 (where the line begins), then by 1.2610 (a swing low from early June), and more importantly – the four-month low of 1.2558.

Conversely, GBP/USD faces robust resistance on the way up. 1.2700 is a round number that has capped it earlier in the day also earlier in the week. Even stronger resistance awaits at 1.2765 – a double top confirmed on Wednesday.

GBP/USD is currently closer to losing the critical uptrend support line than to breaking above the double-top.

What will move the pound?

The next trigger for Sterling volatility originates from the UK Conservative Party's leadership contest. The favorite to win the first round and eventually become PM is former foreign secretary Boris Johnson – and today's victory is priced in.

Among the runner-ups, Dominic Raab, Andrea Leadsom, and Esther McVey are staunch supporters of Brexit. If they come in second after Johnson, the pound may have room to fall.

On the other side of the spectrum, Jeremy Hunt, Rory Stuart, and Matt Hancock support a softer Brexit. If any of them wins second place, the pound has room to rise.

Michael Gove and Sajid Javid are considered centrists within the competition and a strong showing may leave the pound unchanged.

Results are due at 12:00 GMT.

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