GBP/USD hovers just under the 100-hour moving average
Price action has been rather muted since overnight trading as US traders were away but with London traders returning today, we could start to see some better liquidity and hopefully more price movements in the session ahead.
The notable thing about price action since overnight is that cable continues to trade just under the 100-hour MA (red line), now seen at 1.2679. As long as sellers keep price action below that level, the near-term bias remains more bearish.
In terms of fundamentals, traders will have to factor in the Tory leadership contest and month-end flows into the equation in trading this week. The former issue is a rather mixed picture but Boris Johnson remains the favourite amid the backdrop of the Brexit Party dominating the European Parliament elections last week.
Farage's victory won't hold much meaning for the time being but it'll be interesting if we do ever come to a general election in the future, which certainly cannot be ruled out at this point in time. As such, the political uncertainty is still very much present. In that regard, the path of least resistance is still for the pound to grow weaker.
Technically though, cable is nearing near-term support close to 1.2648 and light bids around 1.2650. That will be followed by further support from the 23 May low at 1.2606 alongside notable bids at 1.2590-00 next.
Should those levels give way, it's a clear path towards retesting the 1.2500 handle as well as the January low of 1.2441. However, given that short positions are building at a rather quick pace, there is the potential for a pullback and short squeeze on any decent change in sentiment or from positive headlines.
So, that's something to be wary about as well.
As for levels to watch out for on the upside, the risk for sellers lies in the 200-hour MA (blue line) @ 1.2715 followed by resistance from the 23.6 retracement level @ 1.2742. Those will be key near-term levels to be aware of as a break above that will help buyers build up some short-term momentum after a rough three weeks.
I'd be inclined to still sell the rallies but at current levels it'd be tough to chase a move lower, especially one below 1.2500. A lot of the potential uncertainty looks to be factored in right now and it's going to take fresh headlines suggesting a no-deal/general election to cause the pound to crater well below current levels in my view.
I also believe even if Boris Johnson is voted in, he'll not be as reckless as what the headlines suggest. As mentioned before, it's one thing to be the one on the sidelines commenting and judging but it's a whole other thing to be the one standing on the stage and trying to satisfy everyone else.
