GBP/USD Forecast: Bulls at the mercy of USD price dynamics

The GBP/USD pair had a good two-way move at the start of a new trading week and was influenced by a combination of diverging forces - the ongoing US Dollar retracement from 1-1/2 year tops and Brexit/UK political developments. Uncertainty over the Fed's rate hike path in 2019, coupled with a duo of disappointing US economic data helped the pair to regain positive traction and rise around 80-pips from an intraday low level of 1.2566. 

Meanwhile, bulls seemed to struggle at higher levels following the UK PM Theresa May's speech in the Parliament, wherein she refused to hold a vote on her Brexit deal before the Christmas recess. May earlier said that she intended to schedule a vote for the week of Jan. 14, which many members of Parliament deem as too late and prompted Opposition Labour Party leader, Jeremy Corbyn to decide to bring a vote of no-confidence against the UK PM May.

The market reaction, however, turned out to be rather short-lived and the pair managed to catch some fresh bids during the Asian session on Tuesday. There isn't any major market moving UK economic data due for release on Tuesday and from the US, the second-tier housing market data also seems unlikely to provide any meaningful impetus. Hence, the incoming Brexit/UK political headlines might continue to act as an exclusive source of some extreme volatility around the British Pound. 

From a technical perspective, the pair is currently placed at an important resistance marked by over one-week-old descending trend-line and coinciding with 200-hour SMA. A convincing breakthrough the mentioned barrier, currently near the 1.2640 region, might trigger a near-term short-covering bounce and assist the pair to aim towards reclaiming the 1.2700 handle.

Alternatively, yet another rejection from the mentioned hurdle, leading to a subsequent retracement back below the 1.2600 handle, will point to a resumption of the prior depreciating move and accelerate the slide back towards the 1.2540-35 region. A follow-through selling has the potential to continue dragging the pair further towards challenging the key 1.2500 psychological mark en-route yearly lows around the 1.2480-75 region.