GBP/USD Analysis: Rally pauses near 1.2900, bulls remain at the mercy of USD price dynamics

• Sustained USD selling assisted GBP/USD to gain traction for the seventh straight session on Monday.
• The strong follow-through momentum seemed rather unaffected by renewed fears of a no-deal Brexit.
• The pair retreated a bit on Tuesday amid some USD short-covering move ahead of the FOMC meeting.

The heavily offered tone surrounding the US dollar allowed the GBP/USD pair to build on last week's strong positive move and gain some follow-through traction on Monday. The USD kicked off the new week on a downbeat note and tumbled to near two-week lows amid worries that the economic recovery in the US could be grinding to a halt in the wake of the resurgence in coronavirus cases. This, in turn, fueled speculations that the Fed would add more stimulus for a longer period of time and in bigger quantities to support the economy. The USD bulls failed to gain any respite following the release of mixed Durable Goods Orders data from the US. In fact, the headline orders rose 7.3% MoM in June, slightly better-than-expected. Excluding transportations, orders increased by 3.3% and ex-defense, orders were up 9.2%, both missing consensuses estimates.

The positive momentum seemed largely unaffected by renewed fears of a no-deal Brexit. It is worth reporting that the latest round of negotiations ended last Thursday without any significant progress on the post-Brexit trade deal. Both the UK and the EU said that talks remain at a stalemate and they were still some way off reaching an agreement. Britain's chief Brexit negotiator David Frost said that they will not achieve the goal of striking a preliminary agreement by the UK Prime Minister Boris Johnson's July deadline and the UK should be prepared for the possibility that a deal will not be reached. Nevertheless, the pair shot to the highest level since March 11, albeit struggled to capitalize on the move beyond the 1.2900 mark and edged lower during the Asian session on Tuesday.

The pullback lacked any obvious fundamental catalyst and was sponsored by some USD short-covering move amid some repositioning trade ahead of the two-day FOMC meeting, which gets underway later this Tuesday. In the absence of any major market-moving economic releases from the UK, the pair remains at the mercy of the USD price dynamics. Later during the early North American session, traders will look forward to the US economic docket – highlighting the release of the Conference Board's Consumer Confidence Index and Richmond Manufacturing Index – for some meaningful opportunities.

Short-term technical outlook

From a technical perspective, any meaningful slide is likely to find some support near the June swing high resistance breakpoint, around the 1.2815-10 region. Some follow-through weakness below the 1.2800 mark might prompt some technical selling and accelerate the slide further towards the 1.2765-60 region. That said, the dip might still be seen as a buying opportunity and is more likely to remain limited.

On the flip side, bulls might now wait for a sustained move beyond the 1.2900 round-figure mark. Above the mentioned level, bulls are likely to aim towards reclaiming the key 1.3000 psychological mark. A subsequent strength should pave the way for an extension of a multi-week-old bullish trend.