Trades with a positive bias around 1.2600 ahead of UK CPI

GBP/USD edges higher on Wednesday, though the uptick lacks strong bullish conviction.
Traders opt to wait on the sidelines ahead of the UK CPI report amid a bullish US Dollar.
The setup favours bears and warrants some caution before positioning for further gains.

The GBP/USD pair attracts some dip-buying during the Asian session on Wednesday and for now, seems to have stalled the previous day’s sharp pullback from the vicinity of the 1.2700 mark, or over a one-week top. The uptick, however, lacks bullish conviction, with spot prices struggling to capitalize on the move beyond the 1.2600 round figure ahead of the UK CPI report.

In the meantime, growing acceptance that the Federal Reserve (Fed) will keep rates higher for longer, bolstered by the hotter-than-expected US consumer inflation data on Tuesday, is seen underpinning the US Dollar (USD) and capping the GBP/USD pair. The downside, however, remains cushioned in the wake of reduced bets for early interest rate cuts by the Bank of England (BoE), which might continue to act as a tailwind for the British Pound (GBP).

From a technical perspective, the 100-day Simple Moving Average (SMA), around the 1.2570-1.2565 region, should protect the immediate downside. A convincing break below will make the GBP/USD pair vulnerable to challenge the 200-day SMA, pegged near the 1.2500 psychological mark. With oscillators on the daily chart holding in the negative territory, some follow-through selling will be seen as a fresh trigger for bearish traders.

The GBP/USD pair might then accelerate the downward trajectory further towards the next relevant hurdle near mid-1.2400s before dropping to the 1.2400 round-figure mark and the 1.2375 horizontal support.

On the flip side, any subsequent move up is likely to confront stiff resistance near the 1.2625-1.2630 region, above which bulls might aim back towards conquering the 1.2700 mark. The latter should act as a key pivotal point, which if cleared decisively should lift the GBP/USD pair back towards the 1.2750 supply zone. The momentum could extend further towards the 1.2800 mark en route to the 1.2825-1.2830 area or a multi-month top touched in December.