GBP/USD analysis: Bulls to remain dominant amid positive Brexit newsflow, UK CPI eyed for a fresh impetus

• The incoming positive Brexit-related headlines provided a strong boost to the GBP.
• Renewed USD selling bias provided a strong boost and contributed to the upsurge.
• Investors now look forward to the US inflation figures for some short-term impetus.

Following a modest pullback at the start of the week, the GBP/USD pair witnessed a strong rally on Tuesday and spiked to near five-month tops on a report of a possible draft Brexit agreement. The British Pound strengthened across the board after a Bloomberg report suggested that the UK and EU negotiators are closing in on a draft Brexit deal. The report further added that both sides have sorted out most of the differences over the Irish backstop issue and that the UK PM Boris Johnson has made several major concessions.

Brexit optimism remained supportive

The intraday upsurge took along some short-term trading stops near the very important 200-day SMA and was further fueled by some renewed US Dollar selling bias. On the economic data front, the latest UK jobs report showed that the unemployment rate ticked up to 3.9% during the three months to August but the number of people claiming jobless benefits rose less-than-expected by 21.1K in September. This coupled with wage growth data did little to influence the British Pound, leaving it at the mercy of incoming Brexit-related headlines.
 
The pair climbed to 1.2800 handle – the highest since May 21 – but witnessed a modest pullback during the Asian session on Wednesday. As investors await further Brexit developments, DUP’s concerns on Johnson’s Brexit concessions exerted some fresh pressure on the major. It is worth mentioning that Johnson will need support from DUP before finalizing such a deal. This coupled with the fact that investors might now be inclined to take some profits off the table ahead of the key EU Summit on Thursday and Friday further collaborated to the pair's weaker tone.
 
In the meantime, Wednesday's release of the UK inflation figures will further influence the GBP price dynamics and produce some short-term trading opportunities. Later during the early North-American session, the US economic docket – highlighting the release of monthly retail sales data – might further contribute to the pair's intraday momentum, though is likely to be overshadowed by the incoming Brexit-related headlines.

Short-term technical outlook

From a technical perspective, the overnight strong positive move beyond a key resistance – for the first time since May – could be seen as a key trigger for bullish traders and support prospects for a further near-term appreciating move. However, technical indicators on the daily chart are nearing overbought conditions and hence, any subsequent strength beyond the 1.2800 handle might confront some resistance near the 1.2825-30 region – marking 61.8% Fibonacci level of the 1.3381-1.1959 downfall.
 
On the flip side, the mentioned resistance breakpoint, currently near the 1.2715-10 region, now seems to protect the immediate downside. This is followed by support near the 1.2660 region (50% Fibo. level), below which the pair might turn vulnerable to slide further below the 1.2600 round figure mark. The downfall could further get extended towards weekly lows support near the 1.2510-1.2500 region, coinciding with 38.2% Fibo. level.