GBP/USD Forecast: Seems vulnerable to test 100-DMA, around 1.2425 region

The GBP/USD pair extended the previous day's rejection slide from the 1.2665-70 supply zone and witnessed some follow-through selling for the second consecutive session on Tuesday. The pair dropped back closer to the key 1.2500 psychological mark during the early European session and was pressured by a combination of factors. The US dollar drove some haven flows amid concerns about a further deterioration in the diplomatic relations between the world's two largest economies.

The US State Department on Monday rejected China's territorial claims in the South China Sea. Beijing was quick to respond and claimed that the US was trying to inflame tensions in the disputed waters. This comes on the back of the ever-increasing coronavirus cases in the US, which led to fresh restrictions in California. The developments overshadowed the latest optimism over treatment for the highly contagious disease and took its toll on the global risk sentiment.

The British pound remained depressed, rather witnessed some selling following the release of weaker-than-expected UK monthly GDP report. According to the Office for National Statistics (ONS), the British economy recorded a modest growth of 1.8% in May as compared to consensus estimates pointing to a reading of +5% and the historic fall of 20.3% recorded in April. The ONS also published manufacturing production data, which recorded an unexpected growth of 8.4% in May. Adding to this, the total industrial output matched consensus estimates and showed a growth of 6.0% in May, albeit did little to impress the GBP bulls.

Market participants now look forward to the US economic docket, highlighting the release of consumer inflation figures for June. The data, along with the broader market risk sentiment will play a key role in influencing the USD price dynamics and produce some short-term trading opportunities later during the early North American session.

Short-term technical outlook

From a technical perspective, the overnight fall dragged the pair below confluence support comprising of 100-hour SMA and a three-day-old ascending trend-line. The subsequent weakness supports prospects for additional weakness, through bearish traders are likely to wait for some follow-through selling below the 1.2500 mark. The pair might then accelerate the fall further towards 100-day SMA support, currently near the 1.2425 region.

On the flip side, the immediate hurdle is now pegged near the 1.2545-50 region. Any attempted positive move beyond the mentioned area is likely to confront a stiff resistance, rather remain capped near the confluence support breakpoint, around the 1.2590-1.2600 region. That said, some follow-through buying might trigger a short-covering move and lift the pair back towards the 1.2665-75 strong horizontal resistance.