Ella 
GBP/USD remains on the defensive during Wednesday’s Asian session, extending the previous day’s pullback from around the technically important 200-day moving average around 1.2425-1.2430. Spot prices are currently trading below the 1.2400 round-figure mark, just shy of the lowest levels seen since early June.
Declining bets on more aggressive tightening by the Bank of England (BOE) weakened the pound. This, coupled with underlying bullish sentiment surrounding the US dollar, continues to act as headwinds for GBP/USD. However, traders appeared reluctant to bet heavily, instead choosing to wait and see ahead of the latest UK consumer inflation data. This will be followed by the high-profile FOMC policy decision later in the U.S. session, followed by a Bank of England meeting on Thursday.
From a technical perspective, the relative strength index (RSI) on the daily chart has become slightly oversold, helping to limit the downside for GBP/USD ahead of key data/central bank event risks. Still, the lack of meaningful buying and the overnight breakdown near the all-important 200-day moving average suggest that the recent bearish trend may still be far from over. Furthermore, the recent decline along the downward sloping channel indicates that a downtrend is established, favoring bearish traders.
The above technical setup suggests that the direction of least resistance for the GBP/USD pair is to the downside. Therefore, GBP is likely to then pull back to test the May swing lows (around 1.2310-1.2300). The above-mentioned area happens to be the lower boundary of the above-mentioned trend channel. If it is decisively broken through, it will create conditions for the continuation of the depreciation trend. At that point, spot prices may fall to the 1.2200 mark and then to the next relevant support levels around 1.2150-1.2140.
Conversely, any recovery attempts above the 1.2400 mark are likely to continue to face strong resistance near the 1.2430-1.2435 area or the 200-day EMA. Continued strength could trigger a short-covering rally that could see the GBP/USD pair reclaim the psychological 1.2500 mark. The momentum could build further, but could attract new sellers and find resistance near last week’s swing highs, around 1.2545-1.2550. The 1.2545-1.2550 area should be a key point, if broken, the bullish trend could shift.
The GBP/USD pair may then climb higher to challenge the uptrend channel mark, which currently sits just below the 1.2600 mark. This is followed by the 100-day moving average mark, currently located near the mid-1.26900s, and a decisive break above this mark would indicate that spot prices have formed a near-term bottom and pave the way for a meaningful appreciation move.
