GBP/USD bears looking for a run through key 1.2351 level

• Bears are selling the pound on a weakening UK economic backdrop.
• GBP/USD cross remains below last Friday’s high at 1.2589 and eyes are on 1.2108.

GBP/USD is currently trading at 1.2457, down -0.42%, trading between a range of 1.2439 and 1.2522 while politics remain the main driver for the pound in the coming months. Today, the greenback has been capped although it had been the strongest performer in the European session, sending the pound to the lowest levels since the flash crash. 
Justifiably, bears are selling the pound on a weakening UK economic backdrop following last week’s releases of disappointing PMI data for June highlighted the downward pressures on the UK economy.  

"Having been lifted by stockpiling in the UK ahead of the original March Brexit date, there is growing evidence that economic activity is slowing as these are pared back," analysts at Rabobank argued. "The results of a Bloomberg survey provides consensus forecasts for a modest -0.1% q/q contraction in UK GDP in Q2 and a steady BoE policy rate until 2021."

Meanwhile, this week's key driver is likely to stem from the Federal Reserve's governor Powell and the Federal Open Market committee's minutes. Powell's appearance before the House Financial Services Committee tomorrow could lay out grounds for where the Fed is focussed as markets attempt to assess the magnitude and timing of the upcoming FOMC moves. 

Meanwhile, the BoE’s official guidance has recently suggested that rates could go either way depending on Brexit and BoE Governor Carney has appeared to soften his policy stance recently against the backdrop of trade wars and slowing global growth. We look forward to tomorrow’s releases of May monthly GDP in addition to production and trade data which should help clarify the relative strength of the UK economy. 

GBP/USD levels

"On the charts, a breakthrough the December low close to GBP/USD 1.2478 would target the 1.2351 area which is the April 2017 low," analysts at Rabobank argued. We are not there yet, but analysts at Commerzbank suggest that this is the last defence for 1.2108, the 78.6% retracement of the move up from 2016. "For now this support zone underpins. Minor resistance comes in at the 1.2559 May low. Immediate downside pressure will be maintained while the cross remains below last Friday’s high at 1.2589," they argued.