The GBP/USD pair retreated on Tuesday and slid back below the 1.2100 level as investors' sentiment wavered throughout the day amid thinned volume and in the absence of major macroeconomic data.
At the time of writing, the GBP/USD pair is trading at the 1.2015 area, posting a 0.32% daily loss, while the greenback, measured by the US Dollar Index, remains virtually unchanged on the day at the 104.20 area.
The Cable has been oscillating in a 100-pip range, in tandem with market sentiment, which has been unstable and remains the main driver as investors square their positions into the year-end.
Prospects of a less aggressive Federal Reserve have put the dollar under pressure throughout the fourth quarter, pushing the GBP/USD from an all-time low of 1.0356 in September to a six-month high of 1.2446 in mid-December. However, the rally lost steam during the holiday season.
Currently, the WIRP tool indicates that investors are discounting a larger probability of a 25 basis point hike at the upcoming Fed meeting on February 1st, which would take the target range for the federal funds rate to 4.50%-4.75%.
From a technical perspective, the GBP/USD short-term bias has turned slightly bearish according to indicators on the daily chart, with the RSI dropping below its midline and the MACD showing increasing red bars. In addition, the price has slid below the 20- and 200-day simple moving averages.
On the downside, the next support level could be found at recent lows around 1.1990, followed by the 23.6% Fibonacci retracement of the mentioned rally at 1.1952 and then the 1.1900 area. On the other hand, resistances are seen at the 200- and 20-day moving averages, which sit at 1.2060 and 1.2175, respectively, ahead of the 1.2200 psychological level.
