GBP/USD Forecast: May survives confidence vote, Brexit uncertainties remain

The British Pound was one of the strongest major currencies on Wednesday, helping the GBP/USD pair to reverse an early dip to sub-1.2500 level and rally nearly 200-pips intraday. The pair initially dropped to a fresh 20-month low level of 1.2477 in reaction to the news that leadership contest against the UK PM Theresa May has been triggered. However, several MPs voiced their support to May ahead of the vote and prompted some aggressive short-covering move. The pair continued scaling higher and touched an intraday high level of 1.2671 after May eventually survived a vote of no-confidence over her leadership of the Conservative Party.

The pair cooled off a bit and finally settled around 45-pips off session tops, comfortably above the 1.2600 handle. Despite the positive development, concerns over May's ability to get her Brexit deal through the parliament might now hold investors from placing any aggressive bullish bets and keep a lid on any strong follow-through. In absence of any major market moving economic releases, either from the UK or from the US, the incoming Brexit-related headlines might continue to influence sentiment surrounding the British Pound and infuse volatility across GBP pairs. 

Looking at the technical picture, bulls struggled to sustain/build on the overnight upsurge further beyond 23.6% Fibonacci retracement level of the 1.3175-1.2477 recent downfall. Moreover, technical indicators on the daily chart are yet to move out of the negative territory, clearly suggesting that the bearish pressure might still be far from over. Hence, any subsequent recovery is likely to confront some fresh supply and remain capped near the 1.2700 handle. 

On the flip side, weakness back below the 1.2600 round figure mark now seems to find some support near the 1.2560-55 area, below which the pair is likely to accelerate the slide back towards challenging the key 1.2500 psychological mark. A follow-through selling could see this temporary support break in a spectacular fashion and pave the way for an extension of the pair's well-established bearish trend.