GBP/USD Forecast: 3 reasons for the rise, but don't be fooled

GBP/USD is trading around 1.3100, bouncing from the sub-1.3000 lows recorded on Friday. The rise can be attributed to three factors:

Brexit hopes

Parliament will hold a second round of indicative votes later in the day. No less than eight alternative Brexit options were rejected on Wednesday, but MPs are trying to find a formula that would gain a majority today. A softer version of Brexit, with a permanent customs union, was the closest to winning and has a fair chance of doing so today.

Secondly, there are growing reports that the government will seek an election to sort out the current Brexit chaos. Both options, of a softer Brexit and elections, mean asking for a long extension to Article 50, delaying Brexit, and avoiding a no-deal Brexit on April 12th.

China comeback

Both official and unofficial Manufacturing PMIs from the world's second-largest economy have been upbeat. Concerns about the Middle Kingdom dogged markets and the improvement is helpful. Stimulus from the central government and a calmer mood in trade talks with the US help. The risk-on mood weighs on the safe-haven US Dollar.

Upbeat UK Manufacturing PMI

Also, the forward-looking British figure was robust with 55.1 points, significantly above expectations. The economy has been showing resilience despite Brexit uncertainty, and this is another positive sign. 

However, there's a catch: the rise in manufacturing is due to stockpiling ahead of Brexit, in fear of a cliff-edge event. So, it isn't exactly a sign of confidence. Don't be fooled by this data on April Fool's Day.

The next moves in GBP/USD depend on the votes in Parliament and also on US data. Retail sales are expected to show a return to normality while the ISM Manufacturing PMI is set to stabilize after the fall.

GBP/USD Technical Analysis

GBP/USD is rising but faces an uphill battle as Momentum remains negative and as it trades below both the 50 and 200 Simple Moving Averages that are converging around 1.3140, a critical resistance line. 

Further above, 1.3270 was a swing high last week, and it is followed by the 1.1330 temporary peak in March. The cycle high of 1.3388 is next. 

1.3005 remains significant despite the breach on Friday. Further down, the March low of 1.2960 provides support before 1.2895.