GBP/USD recovers from 7-week lows, remains below 1.29

After plummeting to its lowest level since June 28 at 1.2810, the GBP/USD pair staged a modest recovery in the NA session but continues to remain in the negative territory. As of writing, the pair was trading at 1.2840, losing 0.47% on the day.

The US Dollar Index, which was able to close the day on Monday near the 93 handle, gained traction on Tuesday and retraced all of its losses from the previous day. After rising to a fresh session peak at 93.50, the index eased back a little and is now at 93.35, gaining 0.38% at the moment. The upbeat regional manufacturing indexes from the U.S. provided an additional boost to the greenback. According to the August Nonmanufacturing Business Outlook Survey conducted by the Federal Reserve Bank of Philadelphia, the general activity index improved to 30.7, its highest level in four months. Moreover, Richmond Fed's manufacturing and service sector indexes both showed that the activity continued to expand in the fifth district.

On the other hand, the lower yields on the U.K. government bonds make the cable fragile against other currencies. Eric Theoret, an FX Strategist at Scotiabank, says, "the 2Y U.K.-U.S. spread is widening for a second consecutive session, and risk reversals are pricing a marginally greater premium for protection against GBP weakness. GBP appears vulnerable, and we remain bearish."

With an empty economic calendar in the remainder of the session, the DXY movements could continue to impact the pair's price action.

Technical outlook

The RSI on the daily graph is moving lower towards the 30 handle, suggesting that the bearish pressure is still present. 1.2810 could be seen as the first technical support for the pair ahead of 1.2705/00 (Jun. 26 low/psychological level) and 1.2675 (Jun. 21 low). On the upside, resistances align at 1.2920 (100-DMA), 1.2985 (50-DMA) and 1.3030 (Aug. 11 high).

• GBP/USD still bearish, eyes on 1.2775 – UOB