GBP/USD Forecast: Tory lead in UK election polls support prospects for additional gains

The British pound strengthened on Tuesday and lifted the GBP/USD pair to its highest levels since October 21 amid optimism that the ruling Conservatives will secure a majority at the upcoming general election on December 12. The latest survey conducted by Kantar showed a lead of 12-percentage point for the UK Prime Minister Boris Johnson’s Conservative Party, while another from ICM has the Conservative margin over the Labour party at 7 points. Investors prefer a Conservative majority, which is needed for the passage of Johnson's Brexit pact with the European Union and enact market-friendly policies.

GBP remains supported by UK political optimism

The pair rallied back to the key 1.30 psychological mark and was further supported by a fresh wave of US dollar selling pressure, especially after the US President Donald Trump indicated that a trade deal with China may not come until after the 2020 US presidential election. Apart from this, the US Congress on Tuesday overwhelmingly approved a bill condemning China’s mass detention of ethnic Muslims, and called for sanctions against some officials responsible. This comes after Trump last week signed a bill supporting Hong Kong’s pro-democracy protesters, which coupled with China's harsh reaction and warning to retaliate could further escalated tensions between the world's two largest economies.

The pair finally ended the day just a few pips off session tops and now seems to have entered a bullish consolidation phase, oscillating in a narrow trading band through the Asian session on Wednesday. Moving ahead, market participants now look forward to the release of UK Services PMI for some impetus. Later during the early North-American session, the US macro data – ADP report on private-sector employment and ISM Non-Manufacturing PMI – might further influence the USD price dynamics and contribute towards producing some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the pair on Tuesday finally broke through a resistance marked by the top end of over six-week-old descending trend-channel. Hence, some follow-through buying above October monthly swing highs has the potential to lift the pair further towards an intermediate resistance near the 1.3045-50 region en-route the 1.3100 round-figure mark.

On the flip side, the mentioned resistance breakpoint, around mid-1.2900s, now seems to protect the immediate downside, below which the pair could slide back towards retesting the 1.2900 handle. Failure to defend the mentioned support levels might turn the pair vulnerable and accelerate the slide further towards the 1.2830-25 horizontal support ahead of the 1.2800 round-figure mark. The downward momentum could further get extended towards challenging the trend-channel support, near the mid-1.2700s.