GBP/USD holds on to modest gains above 1.31 despite USD recovery

• Brexit headlines help the GBP stay strong on Tuesday.
• US Dollar Index struggles to find direction, stays flat on the day.
• PMI data from the U.S. paints a mixed picture.

After closing the previous day below the 1.31 mark, the GBP/USD pair retraced the majority of Monday's losses as the latest Brexit headlines helped the GBP gather strength against its rivals. As of writing, the pair was trading at 1.3140, up 0.3% on the day. 

In a written statement to the Parliament, British Prime Minister Theresa May said that she was going to lead the negotiations with the European Union and heightened expectations of the UK reaching a desired deal with the EU. "DExEU (Department for Exiting the EU) will continue to lead on all of the government's preparations for Brexit: domestic preparations in both a deal and a no deal scenario, all of the necessary legislation, and preparations for the negotiations to implement the detail of the Future Framework," the statement further read.

On the other hand, the advanced PMI reading released by Markit showed that the activity in the manufacturing sector in the U.S. expanded at a faster than expected rate in July. However, further details of the report revealed that the Services PMI and Composite PMI figures both fell short of the market expectations. The initial market reaction to the mixed data dragged the US Dollar Index to a fresh daily low of 94.40.

In the second half of the NA session, the DXY shook off the negative impact of the data and erased its daily losses to turn flat near 94.65, making it difficult for the GBP/USD pair to continue to push higher.

Technical outlook

Despite today's recovery, the RSI indicator for the pair rose toward the 50 mark, suggesting a near-term neutral outlook for the pair. On the upside, resistances align at 1.3180 (20-DMA), 1.3245 (50-DMA) and 1.3300 (psychological level/Jul. 10 high). Supports, on the other hand, are located at 1.3070 (daily low), 1.3000 (psychological level), and 1.2955 (Jul. 19 low).