GBP/USD Analysis: Brexit headlines continue to infuse volatility

The GBP/USD pair came under some renewed selling pressure on Thursday and erased the previous day's goodish recovery move from one-week lows. The British pound was being pressured by the introduction of new coronavirus lockdown restrictions in the UK and a strong pickup in the US dollar demand. Against the backdrop of a steep rise in new COVID-19 cases, fading hopes for additional US fiscal stimulus measures before the presidential election on November 3 weighed on investors' sentiment and triggered a fresh wave of the global risk-aversion trade. The anti-risk flow benefitted the safe-haven US dollar and exerted some additional pressure on the major.

The intraday bearish pressure around the sterling after EU leaders called on the UK to make further concessions to secure a trade agreement. Following the conclusion of the first day of the key EU summit, Michel Barnier, the EU's chief negotiator said the level playing field, fisheries and issues of governance remained key sticking points holding up progress on trade talks. The comments drew criticism from the UK chief Brexit negotiator, David Frost, saying that the EU is no longer committed to working intensively to reach a future partnership. The pair slipped back below the 1.2900 mark and failed to gain any respite from mixed US macro data.

The pair finally settled near the lower end of its daily trading range and remained depressed through the Asian session on Friday. Market participants now look forward to the UK Prime Minister Boris Johnson's decision on whether the UK will walk away or continue Brexit talks. This, in turn, will derive the sentiment surrounding the British pound. Later during the early North American session, the release of the US monthly Retail Sales data will influence the USD price dynamics and further contribute to produce some trading opportunities. The US economic docket also features the release of Industrial Production data and the preliminary estimate of the October Michigan Consumer Sentiment Index.

Short-term technical outlook

From a technical perspective, the pair has now drifted back closer to over two-week-old ascending trend-line support. A convincing breakthrough will be seen as a fresh trigger for bearish traders and turn the pair vulnerable to accelerate the fall to the 1.2800 round-figure mark. Some follow-through selling should pave the way for a slide back towards challenging the very important 200-day SMA, currently near the 1.2710 region.

On the flip side, any meaningful recovery back above the 1.2900 mark now seems to confront resistance near the 1.2930 region. A sustained move beyond has the potential to lift the pair back towards the key 1.3000 psychological mark. Any subsequent strength might still struggle to make it through and remain capped near the 1.3065-80 heavy supply zone.