GBP/USD forecast: Break below 1.2400 mark will set the stage for further depreciating move

Persistent Brexit-related uncertainties continue to weigh on the British Pound.
Dovish comments by BoE’s Saunders further dented the already weaker sentiment.
Tuesday’s key focus will remain on the outcome of the Tory leadership contest.

Haresh Menghani FXStreet

The GBP/USD pair remained depressed for the third straight day and weakened farther below mid-1.2400s through the early European session on Tuesday. Given that Boris Johnson is more likely to win the Conservative leadership race and become the next UK PM, rising odds of a no-deal Brexit continued exerting some downward pressure on the British Pound.

The already weaker sentiment deteriorated further in reaction to a more dovish tone by the Bank of England (BoE) Monetary Policy Committee (MPC) member Michael Saunders. Saunders move away from the BoE's gradual and limited rate hike guidance, rather validated expectations that the UK central bank might be moving towards a more easing monetary policy stance.

The pair touched daily lows, around the 1.2430-25 region and was further pressurized by a follow-through pickup in the US Dollar demand. The fact that investors have been scaling back expectations of a 50 bps Fed rate cut at the upcoming meeting on July 30-31 continued underpinning the greenback despite the US President Donald Trump's continuous pressure for immediate rate cuts.

Moving ahead, the key focus will remain on the results of the UK Conservative Party leadership contest, expected to be announced sometime on Tuesday, wherein Boris Johnson is widely expected to win and become the next British PM. Given that the market, to a larger extent, has already priced in the outcome, the pair might witness some short-covering move following the announcement.

However, any attempted bounce might now confront some fresh supply near the 1.2455-60 region, above which the pair is likely to aim towards reclaiming the key 1.2500 psychological mark. Subsequent recovery might still be seen as a selling opportunity and is more likely to remain capped near the overnight swing high - around the 1.2515-20 region.

On the flip side, bearish traders are likely to aim towards challenging the 1.2400 handle, which if broken might turn the pair vulnerable to slide below 27-month lows - around the 1.2380 region, and set the stage for a slide towards testing a support marked by a five-month-old descending trend-channel - currently near the 1.2340-35 area.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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