Following a dramatic slide in the previous session, the GBP/USD pair witnessed a sharp rebound during Asian session on Wednesday on report (via Bloomberg) British Prime Minister Theresa May has accepted that Parliament should be allowed to vote on her plan for ending UK's membership with the European Union. A debate on the downside risk of Brexit eased investors concerns of a 'hard Brexit' and triggered a short-covering bounce, lifting the major back above 1.2300 handle.
On Tuesday, the pair headed back towards last week's flash-crash multi-decade low and dropped below 1.2100 level as investors dumped the British Pound across the board as concerns over Brexit-led UK economic fallout intensified on a leaked report that indicated Britain will lose tax revenue of £66 billion annually if 'hard Brexit' becomes a reality.
Meanwhile, increasing odds of an eventual Fed rate-hike action by year-end boosted the greenback across the board on Tuesday. Hence, investors will closely scrutinize minutes from the Federal Reserve's latest monetary policy meeting in September, due later during NY trading session. With CME group's FedWatch Tool indicating over 60% probability of such an action in December, hawkish Fed minutes will reaffirm market expectations and should boost the greenback across the board.
In the meantime, a relatively quiet economic docket seems unlikely to provide any impetus during European session and hence, MPC Member Cunliffe's testimony on the effect of the Brexit on financial services before the Financial Affairs Sub-Committee will take the spotlight and drive the British Pound ahead of September's FOMC meeting minutes.
Technical outlook
The pair’s rebound from near-term oversold conditions might gain further traction if manages to clear 20-SMA (4-hourly) immediate resistance near 1.2345-50 region. Above this immediate resistance, the momentum seems to lift the pair beyond 1.2400 handle towards its next major hurdle near 1.2450-60 horizontal zone.
Meanwhile on the downside, 1.2250 level now becomes immediate support, which if broken is likely to drag the pair back below 1.2200 handle and aim towards testing 1.2220 support area. A follow through selling pressure might turn the pair vulnerable to head back towards retesting 1.2000 psychological mark support.
The pair has decisively broken below an important horizontal support near 1.1125-20 region and has subsequently dropped below 1.1100 round figure mark support. With short-term indicators turning lower, the ongoing downward trajectory is likely to get extended initially towards 1.1000 psychological mark support before the pair eventually drops to test 1.0970 horizontal support.
On the flip side, any recovery attempt might now confront immediate resistance near 1.1080 level, which is closely followed by resistance near 1.1100 handle. Any further recovery beyond 1.1100 handle might now be capped at an important support break-point, now turned strong resistance, near 1.1120-25 region.
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