GBP/USD forecast: Likely to consolidate ahead of the Tory leadership contest results on Tuesday

  • Resurgent USD demand kept a lid on last week’s recovery from multi-month lows.
  • Persistent fears of a no-deal Brexit further held traders from placing any fresh bets.
  • The key focus will remain on the Tory leadership voting results, expected on Tuesday.

The GBP/USD pair failed to capitalize on its recovery move 27-month lows and witnessed some selling on Friday, eroding a part of the previous session's goodish up-move back closer to weekly tops. Despite the fact that the UK Parliament voted in favour of an amendment to ensure that the parliament is not suspended on key dates in October, persistent Brexit-related uncertainties held investors from placing any aggressive bullish bets on the last trading day of the week.

This coupled with resurgent US Dollar demand, supported by St. Louis Fed President James Bullard's comments further collaborated to the pair's intraday slide. Bullard on Friday partly ruled out the possibilities of 50 bps rate cut at the July meeting and said that the current US economic condition doesn't warrant a larger cut. This came after the New York Fed President John William’s walked back on his dovish remarks on Thursday and prompted some USD short-covering move.

The pair opened with a modest bearish gap at the start of a new trading week, albeit now seemed to show some resilience below the key 1.2500 psychological mark. Investors still seemed reluctant to place any aggressive bets ahead of the Tory leadership voting results, expected to be announced sometime on Tuesday. Boris Johnson remains the frontrunner and has shown readiness to leave the EU on October 31, even without a deal. This should keep a lid on any meaningful up-move and possibly lead to a subdued/range-bound price action amid absent relevant market-moving economic releases either from the UK or the US.

From a technical perspective, the pair still needs to make it through the 1.2560-70 region to increase prospects for any further near-term recovery beyond the 1.2600 handle towards its next major hurdle near the 1.2665-70 supply zone. On the flip side, the 1.2475-65 region now seems to have emerged as an immediate support, which if broken might turn the pair vulnerable to accelerate the slide back towards challenging the 1.2400 round figure mark. Any subsequent slide might continue to attract some buying interest near a support marked by the lower end of a four-month-old descending trend-channel and help limit deeper losses.


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