GBP/USD: Cautious Mood Prevails

After yesterday's sharp intraday pullback, the GBP/USD pair regained positive traction and held on to its modest gains above mid-1.3000s through the early European session on Wednesday. The British Pound got an additional boost following the release of better than expected UK monthly GDP print and manufacturing/industrial production data though were partly offset by larger than expected UK trade deficit figures. Traders, however, remained cautious and refrained from placing any aggressive bets ahead of the crucial EU summit, set up to respond to the UK PM Theresa May's request for a Brexit extension until June 30. 

There is a good chance that Article 50 will be extended for a second time but the length and the conditions of the extension might influence the near-term sentiment surrounding the British Pound. Moreover, the fact that the cross-party talks are yet to produce any positive results and that conditions set by European leaders for an extension are not met might further collaborate towards infusing a fresh bout of volatility across the GBP pairs.

Looking at the technical picture, the downside remains cushioned near confluence support comprising of the lower end of a four-month-old ascending trend-channel and the very important 200-day SMA. The set-up has been favouring bullish traders and the positive outlook is likely to be reaffirmed on a sustained move beyond the 1.3100 mark, above which the pair is likely to head towards testing the 1.3155-60 supply zone. A follow-through buying has the potential to lift the pair further towards reclaiming the 1.3200 round figure mark. 

The mentioned confluence region, currently near the 1.30-1.2980 region, might continue to protect the immediate downside, which if broken decisively would suggest a near-term bearish breakdown and accelerate the slide further towards the 1.2900 round figure mark. Failure to defend the said handle is likely to pave the way for an extension of the downward trajectory further towards testing sub-1.2800 level in the near-term.

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