GBP/USD struggling to extend recovery bounce, stuck near 1.2050 level

The GBP/USD pair failed to build on early European session recovery move to 1.2085 region and retreated back mid-1.2000s, albeit remained around 60-pips off an initial slump closer to Oct. flash crash lows.

Comments from the UK PM Theresa May spokeswoman, terming the talks of a hard Brexit as "speculation", eased market worries and provide some immediate respite for the major. However, speculations that Ms. May could emphasis on curbing free movement of people, at her much anticipated speech on Tuesday, has been fueling concerns of losing access to the European Union's single market and weighing on the British Pound. 

Meanwhile, a solid greenback recovery, as depicted by the key US Dollar Index, also contributed towards restricting the pair's recovery move. Moreover, investors also seemed reluctant to carry / initiate fresh positions ahead of this week's key event risks, including the President-elect Donald Trump's inauguration on Jan. 20.

In absence of any major market moving releases and a holiday in the US market, the pair is likely to extend its consolidative price action. However, BOE Governor Mark Carney's speech might provide short-term impetus for traders later during NY session.

Technical outlook

Valeria Bednarik, Chief Analyst at FXStreet notes, "From a technical point of view, the 4 hours chart shows that the price remains far below a bearish 20 SMA, in the 1.2160 region, whilst technical indicators are holding near oversold readings, trying to correct higher, but with quite limited upward strength. Additionally, selling on spikes continues to be an interest trade, in spite of the gap."

She further writes, "The pair needs to recover above 1.2120 to advance up to the 1.2160 region, where strong selling interest will likely resurge and prevent it from advancing further. The immediate support comes at 1.2045, with a break below it indicating a slide towards 1.2000 first, and further, towards the mentioned daily low of 1.1986."