GBP/USD Forecast: Upside potential seems limited

A combination of supporting factors helped the GBP/USD pair to regain some positive traction on the first day of a new trading week and snap two consecutive days of losing streak. The US dollar came under some renewed selling pressure during the early European session on Monday and turned out to be one of the key factors that triggered the initial leg of the intraday positive move. The USD bulls remained on the defensive amid concerns over a potential Iranian retaliation to the US drone strike last Friday, which killed Iran's top military commander.

GBP struggles to capitalize on the overnight positive move

The British pound found some additional support from stronger-than-expected UK Services PMI, which was revised higher to 50.0 for December as compared to the flash estimate of 49.0 and 49.2 anticipated. The pair rallied over 100 pips from intraday lows and finally settled near the top end of its daily trading range, above mid-1.3100s.

Meanwhile, the market mood calmed a bit in the absence of any fresh threats from the US or Iran. This was evident from a slight improvement in the global risk sentiment, which helped the US Treasury bond yields to stage a late rebound on Monday. A positive tone around the US bond yields extended some support to the buck and eventually turned out to be one of the key factors that kept a lid on any further gains for the major.

The pair now seems to have entered a bullish consolidation phase and was seen oscillating in a narrow trading band through the Asian session on Tuesday. In absence of any major market-moving economic data from the UK, the upside is likely to remain limited amid concerns that the UK won't be able to reach a trade agreement and crash out of the European Union at the end of this year. Later during the early North-American session, the release of the US ISM Non-Manufacturing PMI might influence the USD price dynamics and produce some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the overnight positive move failed to find acceptance above 100-hour SMA and failed ahead of the 1.3200 round figure mark. Hence, it will be prudent to wait for some follow-through buying beyond the mentioned handle before positioning for a move back towards mid-1.3200s en-route the recent swing high resistance near the 1.3285 region.

On the flip side, any meaningful slide back below the 1.3130 region (38.2% Fibo.) now seems to find some support near the 1.3100 handle. Failure to defend the mentioned support might turn the pair vulnerable to slide back towards 23.6% Fibo. level support near mid-1.3000s before eventually dropping to test levels below the key 1.30 psychological mark.