The GBP/USD pair finally broke down of its two-day-old consolidative trading range and tumbled to over two-month lows on Tuesday amid resurgent US Dollar demand. The pair did witness some intraday uptick but failed to capitalize on the move/sustain above the key 1.30 psychological mark, rather met with some aggressive supply and dropped below the very important 200-day SMA support. Against the backdrop of reports about attempts to oust the UK PM Theresa May, a strong USD rally to the highest level since June 2017 turned out to be one of the key factors exerting some heavy downward pressure on the major.
Improving global risk sentiments, coupled with the recent upsurge in oil prices, which could eventually lift core inflation, revived chances for a Fed rate hike later this year and underpinned the greenback demand. The strong intraday USD up-move got an additional boost from better than expected US data, showing that new home sales rose to a 16-month high. Adding to this, the lack of progress in the cross-party talks to break the Brexit deadlock further weighed on the British Pound and dragged the pair to an intraday low level of 1.2928, the lowest since Feb. 19.
The pair now seems to have entered a bearish consolidation phase and was seen oscillating in a narrow trading band through the Asian session on Wednesday. In absence of any major market moving economic releases, either from the UK or the US, any fresh Brexit-related news/development might play an important role in influencing the sentiment surrounding the British Pound, which coupled with the USD price dynamics might further collaborate towards producing some meaningful trading opportunities ahead of this week's important US macro data.
From a technical perspective, the pair's inability to defend key horizontal support near the 1.2970-65 region confirms a fresh bearish break through a descending triangular formation and also adds credence to last week's break below a short-term ascending trend-channel. With technical indicators on daily chart gaining negative traction and still far from being in the oversold territory, the pair seems more likely to extend the downfall further towards challenging the 1.2900 round figure mark. A follow-through selling has the potential to drag the pair further towards testing sub-1.2800 level, 1.2790-80 support area in the near-term.
On the flip side, attempted recovery might now confront some fresh supply near the important confluence support break-point, around the 1.2965-70 region, ahead of the 1.30 handle. Any subsequent up-move seems more likely to remain capped near a short-term descending trend-line (part of the descending triangle), currently near the 1.3035-40 region.
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