GBP/USD Forecast: Bearish bias remains despite of broad based USD retracement

The GBP/USD pair steadies on Tuesday but remained below 1.2200 handle and traded with mildly bearish bias, despite of broad based US Dollar weakness, closer to 2-1/2-month lows touched yesterday. The major on Monday was sharply lower and tumbled to the lowest since Oct. 28, 2016 as comments from UK Prime Minister Theresa May, over the weekend, were taken as signs that Britain won’t try to negotiate for full access to the EU bloc's single market. The remarks pointed towards increasing possibilities of a ‘hard’ Brexit and weighed heavily on the British Pound across the board.

Meanwhile against other currencies, the greenback resumed with its corrective slide, with the EUR/USD pair moving back above 1.0600 handle to retest 1.0620 important horizontal barrier. The pair shrugged-off hawkish comments from Boston Fed President Eric Rosengren and Atlanta Fed President Dennis Lockhart, which supported the case for additional rate hikes this year.

Given the velocity of the greenback's rally in the fourth quarter, the prevalent cautious mood prompted market participants to lock-in some profits, after Friday's strong up-move in wake of the US monthly jobs report. Moreover, in absence of any relevant market moving releases, investors seemed to reposition ahead of this week’s important speeches from various Fed officials, including the Fed Chair Janet Yellen.

In the meantime, any fresh news / comments on Brexit and the broader US Dollar price-dynamics would continue to be key determinants for the pair's movement.

Technical outlook

GBP/USD

Currently trading around mid-1.2100s, the pair remains within striking distance of its immediate strong support near 1.2100-1.2080 region. A convincing break below this immediate support would expose early October swing lows support near 1.20 psychological mark below which a fresh leg of weakness should open room for continuation of the pair’s well-established downward trajectory. On a convincing break below 1.20 mark, the pair might continue drifting lower in the near-term towards 1.1800 region, marking 61.8% Fibonacci expansion level of 1.3533-1.1980 downslide and subsequent retracement.

On the upside, any recovery attempt might continue to face hurdle near an important horizontal support break-point, turned resistance, near 1.2200 round figure mark. A clear break above this immediate barrier is likely to trigger a short-covering rally towards 1.2280-85 resistance area, en-route its next resistance near 1.2340-50 zone.

EUR/USD

With short-term technical indicators already in bullish territory, and a sustained move above 200-SMA (4-hourly), clearly suggests that the pair is more likely to break through 1.0620 strong horizontal resistance and spike towards 1.0670 intermediate resistance before attempting a move towards reclaiming 1.0700 handle. A follow through buying interest has the potential to continue boosting the pair further towards its next resistance near 1.0765-70 region.

Alternatively, reversal from current resistance level now seems to find immediate support at 200-SMA, near 1.0550 region, below which the pair is likely to slide back towards 1.0500 psychological mark before eventually dropping to its next major support at 100-SMA (4-hourly), near 1.0470-65 region.