GBPUSD has been moving sideways, finding support around 1.2365 and resistance at the 1.2500 major psychological level. Price is making its way back to support after a recent bounce from the top of the range.
The 100 SMA is above the longer-term 200 SMA so the path of least resistance is to the upside, which suggests that the bottom of the range could keep losses in check. Stochastic is also turning up from the oversold area to indicate a return in buying pressure.
However, a surge in bearish momentum could trigger a break below the range support and a 135-pip drop for the pair, which is roughly the same height as the rectangle formation. Similarly, a break past the top of the range could yield at least 135 pips in gains.
Event risks for the day include the US preliminary GDP release, which could see an upward revision from 2.9% to 3.0% for Q3. The CB consumer confidence index is also due and a rise from 98.6 to 101.3 is expected.
Only medium-tier reports are lined up for the pound today, as the main UK event for the week is set for Wednesday when the BOE bank stress test results will be released. BOE Governor Carney will also provide an assessment of financial risks, which would likely include his take on the Brexit.
Keep in mind that Carney has been reiterating his anti-Brexit sentiments recently, holding meetings with top finance and business leaders in the UK to lobby for an extension before PM May invokes Article 50. He would likely use this week’s Financial Stability Report as a platform to highlight the Brexit risks to banking and businesses.