GBP/USD: downside limited, short covering to take place here?

Currently, GBP/USD  is trading at 1.2214, down -0.12% on the day, having posted a daily high at 1.2250 and low at 1.2186.

GBP/USD is consolidating the downside and finding good support on yield spreads, compared to treasuries and bunds, which could induce some short covering given how short the market is currently shown by the recent CFTC data. It looks as though some covering has already started to take place according to last weeks information.  The next big event for sterling is UK GDP data out this Thursday. 

"The important news in the UK really came with Friday's public sector borrowing data. The UK's public finances are not in great shape and the scope for fiscal easing isn't huge. Nor does the new Chancellor do much to encourage hopes of significant easing, which removes one source of support from sterling," explained Kit Juckes, economist at Societe Generale. 

Meanwhile, the UK CBI industrial trends survey data brought mixed news for the GBP; manufacturing orders weakened sharply in October to –17 from –5 in September while growth in output slowed, as note dby analysts at Scotiabank, adding, "The quarterly business optimism index rebounded strongly from the immediate post-Brexit trough of –47 to –8. But while the immediate panic around Brexit has stabilized, the economy may be about to experience another hit to sentiment as businesses (banks, manufacturers) are starting to form their post-Brexit exit strategies." 

GBP/USD levels

Valeria Bednarik, chief analyst at FXStreet explained that, technically, the 4 hours chart presents a neutral stance, given that the price is confined within a tight range and below a directionless 20 SMA, while technical indicators, despite heading modestly higher, hold within bearish territory.

A steady recovery beyond 1.2260 on dollar's weakness, can see the pair advancing up to 1.2300/30, although selling interest around this last will likely contain the pair. Below 1.2190 on the other hand, the risk is towards the downside, with the next supports and probable bearish targets at 1.2145 and the 1.2100 figure.

Msanwhile, spot is presently trading at 1.2216, and next resistance can be seen at 1.2220 (Hourly 20 EMA), 1.2222 (Daily Classic PP), 1.2228 (Daily Open), 1.2232 (Hourly 200 SMA) and 1.2233 (Weekly Classic PP). Next support to the downside can be found at 1.2186 (Daily Low), 1.2183 (Weekly Low), 1.2180 (Daily Classic S1), 1.2171 (Yesterday's Low) and 1.2134 (Weekly Classic S1).