GBP/USD analysis: Faces rejection near 200-DMA despite the recent Brexit optimism

The British Pound remained in the spotlight and gained strong follow-through traction on Friday amid growing optimism over an orderly Brexit. The GBP/USD pair added to the previous session's solid gains and rallied to levels just above the 1.2700 handle, the highest since late June in reaction to the incoming positive Brexit-related headlines. Given the Irish Prime Minister Leo Varadkar's promising signals on Thursday, the Sterling got an additional boost after the European Council President Donald Tusk said that "we have received optimistic messages that there could be a deal on Brexit".

Brexit optimism remained supportive

This was followed by reports that the EU Chief negotiator Michel Barnier has secured the green light from EU27 to open intensive negotiations on the UK PM Boris Johnson’s latest Brexit proposals. The intraday upsurge took along some short-term trading stops being placed near the key 1.2500 psychological mark and was further supported by persistent US Dollar selling bias. Firming market expectations that the Fed will move to cut interest rates further at its upcoming policy meeting on October 29-30 kept exerting some downward pressure on the Greenback.
 
Meanwhile, a positive outcome from the crucial high-level US-China trade talks provided some respite to the USD bulls and kept a lid on any further gains, rather prompted some profit-taking near the very important 200-day SMA barrier. After two days of negotiations, the United States and China reached a 'Phase 1' trade deal. As the US President Donald Trump briefed on Friday, the agreement covered agriculture, currency and some aspects of intellectual property protections. Later, the US Treasury Secretary Mnuchin confirmed that the US has delayed a planned increase in taxes on $250 billion worth of Chinese goods as a part of the deal.
 
The pair finally settled around 50-60 pips off session tops and retreated further during the Asian session on Monday in reaction to the weekend comments that a lot more work would be needed to secure an agreement on Britain's departure from the bloc. More talks are scheduled on Monday and the UK PM Johnson hopes that a deal will be agreed in time for the EU leaders to approve it at a summit in Brussels on Thursday and Friday this week. Hence, the incoming Brexit-related headlines might continue to act as an exclusive driver of the pair's momentum amid absent relevant market-moving economic releases on Monday.

Short-term technical outlook

From a technical perspective, the pair's inability to find acceptance above the 50% Fibonacci level of the 1.3381-1.1959 downfall and a rejection near the 200-day SMA might prompt some long-unwinding trade. Hence, a subsequent dip, back towards testing 1.2550 horizontal resistance breakpoint-turned support, now looks a distinct possibility. This closely followed by 38.2% Fibo. support near the 1.2500 handle, which might now act as a key pivotal point for short-term traders.
 
On the flip side, immediate resistance is now pegged near the 1.2660 region (50% Fibo. level), above which the pair is likely to make a fresh attempt towards conquering the 1.2700 handle. A sustained move beyond the 200-DMA might further fuel the recent strong bullish bias and lift the pair further towards the 1.2785 intermediate resistance en-route the 1.2800 round-figure mark and 61.8% Fibo. level – around the 1.2835 region.