GBP/USD: May's leadership on a frayed-thread and odds are stacking up for a collapse in the pound

• GBP/USD has been battered by infighting between the Torys with PM May's thread fraying a little with talk of her colleagues writing letters of no confidence to the chief whip.
• The temperature is heating up this week as impatient colleagues look for a change of leadership.
• The fear is that May will fail to hold her party together, not just through Brexit, but well beyond given how deeply seated the divisions appear to be.
• GBP/USD has dumped from 1.3090 to a low of 1.2956, trading, at the time of writing, at 1.2980. 

The infighting commenced on the news that Theresa May was open to the idea of extending the post-Brexit transition period beyond December 2020. This is regarded as capitulation on the part of May to her Brexiteers within the Tory party. The House of Commons has been a battlefield, but whether they were leavers or remainers, there has been one thing in common and that is a discontent in May's Brexit leadership.  Shockingly, in an article in the Sunday Times, a Tory backbencher was quoted as saying: "The moment is coming when the knife gets heated, stuck in her front and twisted. She'll be dead soon."

• UK Brexit Sec. Raab: Amendments to meaningful vote cannot delay/prevent Brexit
• UK Brexit Sec. Raab: Brexit deal motion will be amendable

May is currently speaking to MPs on last week's summit in Brussels where nothing was agreed and everything was left up in the air. She has just said that she has not committed to extending the transition period which is undesirable - During which the UK will effectively remain inside the European Union’s economic system, paying bills, but in order to smooth the 'transition of leaving' well into 2021, giving time to conclude a long-term EU-UK trade deal and sort out issues on the Irish border - However, British people and British businesses just want to get on with it and so do the MPs who have fiercely objected to such an idea - and that is what is weighing so heavily on the pound - pretty much summing up a Tory party that could be beyond repair. 

• UK PM May: An extension of the implementation period is undesirable

"Short of complete withdrawal from the Brexit talks, the intra-Tory dispute over the terms of departure has as much or more potential for harm to the sterling as anything that emanates from Brussels or the negotiators, Michel Barnier and Dominic Rabb,"

 - Joseph Trevisani, Senior Analyst at FXStreet explained. 

Sterling positioning in the market

As far as positioning goes, we saw from the Commitments of Traders weekly CFTC futures forex positioning data that GBP shorts were trimmed by 11K - (GBP short 50K vs 61K short last week. Shorts trimmed by 11K), but all of that is likely being unravelled again taking its toll on the spot price. "The size of these short positions has been choppy in the past couple of months, reflecting uncertainty regarding Brexit and the UK political backdrop," analysts at Rabobank explained. 

Then, when we look across the board, EUR/GBP is breaking a technically important level to the upside with its head now above the descending channel's resistance, GBP/JPY bears are in control moving lower in the descending channel and en-route to a key support level, (145.69), that if broken could accelerate the momentum and steepen the trajectory of the descending channel as well. As for the greenback, it is getting a foothold on the 96 handle - All in all, a highly technical outlook for Sterling. 

GBP/USD levels

Analysts at Commerzbank explained that below 1.2905 there is scope for a slide back to the 78.6% retracement at 1.2798/85 and the 6th September low - "This is seen as the last defence for the 1.2662 August low."

However, it was also noted that the market recently recovered just ahead of Fibo support at 1.2905 but warned that the pair has been showing little interest in tackling resistance offered by 1.3298, the September high and 1.3363, the July high - "These remain major break up points to 1.3477 the 200-day ma initially. Currently, the outlook is fairly neutral."