GBP/USD Forecast: A break below uptrend support? Why doom and gloom could take over

A northern rebellion from within – this is just the latest trouble for Prime Minister Boris Johnson. No fewer than 50 of his Conservative Party MPs sent a letter complaining about the government's policy in the Tories' recently won constituencies and lament the lack of an exit strategy from the recent coronavirus-related restrictions. 

COVID-19 cases continue rising in the UK and have remained elevated also on Monday – a day that usually sees a drop due to administrative delays over the weekend. The pandemic is gripping the northern hemisphere and weighing on the global economy. Sterling is struggling with Britain's local lockdowns, while the dollar is benefiting from safe-haven flows. 

Another factor weighing on sentiment is uncertainty ahead of the US elections. While several post-presidential debate polls have shown a steady lead for Joe Biden, critical high-quality surveys from battleground states are still awaited. Moreover, the Senate race remains closer. FiveThirtyEight's model is pointing to only a 12% chance that President Donald Trump is reelected, while Republicans have roughly a 30% probability of holding onto the Senate. 

More 2020 Elections: Seven reasons why this is not 2016, time to focus on the Senate

Markets currently prefer a large win for Democrats – aka "blue wave" – that would ensure a generous stimulus package and despite potentially market-unfriendly policies. Congress is now adjourned, meaning a relief deal is all but dead. 

Source: FiveThirtyEight

The pound has been holding up due to perceived progress on Brexit talks. Chief EU Negotiator Michel Barnier extended his stay in London for ongoing talks. However, as time passes by, the silence around the deliberations stops helping the currency and begins weighing on it. 

PM Johnson denied that he is waiting for the US elections to strike a deal with the EU. Resolving the issues of state aid and fisheries is more critical than a question of timing – at least that is the current notion in financial markets. 

Apart from politics and the virus, markets will be watching two US releases later in the day – Durable Goods Orders for September and the Conference Board's Consumer Confidence gauge for October. Both are projected to edge higher, but the recent uptick in US cases and the lack of government support could limit any gains.

See: US Durable Goods Orders Preview: Will the part reflect the retail whole?

All in all, there are more factors that could weigh on the pound or boost the safe-haven dollar, and only Brexit hopes to keep sterling bid. 

GBP/USD Technical Analysis

Pound/dollar is trading above the uptrend support line that has been accompanying it since mid-October. The line is backed up by the 50 and 100 Simple Moving Averages. Is it enough to trigger a bounce? Momentum is to the downside, while the pair trades above the 200 SMA. The battle is open.

The uptrend support line comes out at around 1.3015 at the time of writing. It is followed by 1.2990, a low point on Monday, and then by 1.2910 and 1.2865. 

Resistance is at 1.3075, a high point on Monday, and then by 1.3125 and 1.3175.