GBP/USD hits fresh two-month highs and retreats

The GBP/USD pair was seen building on to its recent near-term recovery trend and touched the highest level since Oct. 4 on Tuesday. The pair, however, has retraced few pips from session peak and is currently trading around 1.2750 region. 

Following its initial bearish reaction on Monday, in wake of Italy's no vote to Prime Minister Matteo Renzi’s constitutional reforms proposal in a referendum on Sunday, the pair managed to recover back above 1.2700 handle. Monday's recovery move got an additional boost from stronger-than-expected UK services PMI print, which added on to Friday's upbeat UK construction PMI. The pair, however, struggled to gain further traction and was contained below mid-1.2700s.

On Tuesday, the pair maintained its bid tone for the sixth consecutive session as the US Dollar seems to have stalled its post-US election rally. Market participants have turned cautious and think that the greenback might have run ahead of the fundamentals and hence, focus would remain on next week's FOMC meeting, which would provide fresh clues over possibilities, and timing of next Fed rate-hike action in 2017, and would eventually determine the next leg of directional move for the major. 

In the meantime, today's US economic docket, featuring non-farm productivity, trade balance data and factory orders, might provide some impetus for short-term traders.

Technical levels to watch

A follow through buying interest might continue to boost the pair further towards 100-day SMA resistance near 1.2795-1.2800 region, which if cleared should assist it further towards 1.2875-80 strong resistance. On the downside, 1.2700 handle now becomes immediate support to defend, which if broken is likely to drag the pair back towards 1.2610-1.2600 important support with some intermediate support near mid-1.2600s.