GBP/USD Analysis: Brexit worries prompt some profit-taking, bullish bias intact

• GBP/USD failed to capitalize on upbeat UK macro data-led uptick back closer to YTD tops.
• The lack of progress in Brexit negotiations prompted some fresh selling around the sterling.
• A goodish pickup in the USD demand further contributed to the pair’s sharp intraday slide.

The GBP/USD pair gained some traction during the early part of the trading action on Friday and was supported by upbeat UK macro data. The Office for National Statistics (ONS) reported this Friday that the UK retail sales volumes rose by 3.6% from June and were 1.4% higher than in July 2019. Separately, the flash version of the UK Manufacturing and Services PMI also came in better-than-expected. The data did provide a modest lift to the British pound through bulls struggled to capitalize on the uptick. The pair once again failed to find acceptance above mid-1.3200s and witnessed an intraday pullback from the vicinity of YTD tops.

The lack of progress in Brexit negotiations was seen as one of the key factors that exerted some pressure on the sterling. Speaking after the latest round of talks, the EU's chief negotiator Michel Barnier said that he was disappointed and surprised by the fact that negotiations are not speeding up. Barnier's UK counterpart David Frost also said that a little progress was made amid differences on fisheries policy and state aid rules. This comes amid a modest pickup in demand for the US dollar, which attracted some heaven flows amid a turnaround in the risk sentiment and further contributed to the pair's intraday pullback of around 130 pips.

Meanwhile, the downside is likely to remain limited as investors remained concerned about the US economic recovery. This, coupled with the uncertainty over the next round of the US fiscal stimulus measures and a fresh leg down in the US Treasury bond yields might hold the USD bulls from placing any aggressive bets. Market participants now look forward to the US economic docket, highlighting the release of flash US PMI prints (Manufacturing and Services) for some short-term trading impetus on the last day of the week.

Short-term technical outlook

From a technical perspective, the pair has been oscillating in a broader trading range over the past one-week or so. Given the recent strong rally, the range-bound trading action might still be categorized as a near-term consolidation phase. However, it will be prudent to wait for some strong follow-through buying before positioning for any further appreciating move.

A sustained strength beyond the 1.3250 region will set the stage for an extension of the bullish trajectory further towards December 31 swing highs, around the 1.3285 region, en-route the 1.3300 round-figure mark. Alternatively, some follow-through weakness below the 1.3100 mark might be seen as a fresh trigger for bearish traders and turn the pair vulnerable to break below weekly lows, around the 1.3065 region, before bears eventually aim to challenge the key 1.3000 psychological mark.