• GBP/USD remained depressed through the first half of the trading action on Wednesday.
  • Barnier’s comments that we remain determined to strike a Brexit deal extended support.
  • The set-up favours bearish traders and supports prospects for a further near-term downfall.

The GBP/USD pair witnessed some follow-through selling and dropped to fresh two-months lows, around the 1.2675 region during the first half of the trading action on Wednesday. The British pound remained depressed on the back of growing market fears about a second lockdown in the UK. It is worth recalling that Britain's Prime Minister Boris Johnson announced new rules to curb the rise in coronavirus cases and warned to introduce greater restrictions if there is no improvement in the pandemic situation.

This comes amid persistent Brexit-related uncertainties and took its toll on the British pound. The pair remained depressed and failed to gain any respite from Wednesday's release of the flash Markit UK PMI prints. The gauge for the services sector fell more than expected to 55.1 for September from the 58.8 previous. Meanwhile, the UK Manufacturing PMI matched consensus estimates and came in at 54.3 as compared to the previous month's final reading of 55.2, albeit did little to impress the GBP bulls.

On the other hand, the US dollar continued benefitting from its status as the global reserve currency amid concerns about the second wave of coronavirus infections and fears of renewed lockdown measures to contain the outbreak. Apart from this, Chicago Fed President Charles Evans struck a hawkish tone on Tuesday and provided an additional boost to the already stronger greenback. A broad-based USD strength further contributed to the pair's intraday slide to the lowest level since July 23.

Despite the negative factors, the pair witnessed some intraday selling and rallied around 75 pips from daily swing lows. The sudden uptick was triggered by some optimistic comments by the EU's chief Brexit negotiator, Michel Barnier, saying that we remain determined to strike a Brexit deal. Barnier will be in London for informal talks until Friday and hence, the incoming headlines will influence the sentiment surrounding the sterling and produce some meaningful trading opportunities.

Wednesday's US economic docket highlights the release of the flash version of Markit US Manufacturing and Services PMIs. This, along with the Fed Chair Jerome Powell's second day of the congressional testimony might assist investors to grab some short-term trading opportunities later during the early North American session.

Technical outlook

From a technical perspective, the pair stalled its recent bearish trajectory near a support marked by the 38.2% Fibonacci level of the 1.1412-1.3482 positive move. However, weakness below the very important 200-day SMA – for the first time since July – still favours bearish traders. Hence, any attempted recovery move might still be seen as a selling opportunity and remain capped near the 1.2800 area. That said, some follow-through buying might trigger a short-covering move and push the pair further beyond the overnight swing high, around the 1.2865 region, towards reclaiming the 1.2900 mark.

On the flip side, the 38.2% Fibo. level, around the 1.2685-75 region, now seems to act as immediate support. A convincing breakthrough the mentioned support could accelerate the slide to the 1.2625-20 horizontal support en-route the 1.2600 mark. Some follow-through selling would turn the pair vulnerable to extend the fall towards mid-1.2500s before eventually dropping to the key 1.2500 psychological mark. 

fxsoriginal

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