GBP/USD Forecast: Bearish ahead of Brexit negotiations, UK/US PMIs eyed for some impetus

The GBP/USD pair came under some aggressive selling pressure during the second half of Friday's trading action and tumbled to 4-1/2 month lows amid persistent uncertainty about the future UK-EU trade relationship. It is worth recalling that the EU's mandate on the post-Brexit negotiations emphasized on the need for a 'level playing field' and turned down prospects for the UK Prime Minister Boris Johnson's Canada-style trade deal. On the other hand, the UK threatened to walk away from trade talks on WTO rules in June unless there is the "broad outline" of an agreement.

Brexit uncertainties might continue to cap

This coupled with an intraday US dollar bounce aggravated the selling pressure and dragged the pair to its lowest level since October 16, around the 1.2725 region. The greenback, however, failed to preserve its attempted recovery move, rather met with some fresh supply after the Fed Chair Jerome Powell said that the central bank will "act as appropriate" to support the economy and offset the risks posed by the coronavirus epidemic. This eventually assisted the pair to rebound nearly 100 pips and finally settle with only modest losses, above the 1.2800 round-figure mark.

The USD bulls remained on the defensive on the first day of a new trading week – in the wake of the second coronavirus-led death in the US – and continued lending some support to the major. Market participants now look forward to the release of final UK Manufacturing PMI for a fresh impetus. Meanwhile, the key focus will be on the first formal meeting between the UK chief negotiator, David Frost, and his EU counterpart, Michel Barnier. Given that investors do not expect any major break through at this initial stage of negotiations, fresh developments should play a key role in influencing the sentiment surrounding the British pound and infuse some volatility.

Later during the early North-American session, the release of the US ISM Manufacturing PMI will also be looked upon for contribute towards producing some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the pair on Friday broke below a two-month-old descending trend-channel and the set-up supports prospects for a further near-term downside. Hence, any subsequent positive move towards the 1.2875-80 region might still be seen as an opportunity to initiate fresh bearish positions.

That said, a sustained move above the mentioned barrier, leading to a subsequent strength beyond the 1.2900 handle might negate the negative outlook and set the stage for a move towards reclaiming the key 1.30 psychological mark. The latter coincides with 50-day SMA and should act as a key pivotal point for the pair’s next leg of a directional move.

On the flip side, weakness back below the 1.2800 round-figure mark might continue to find some support near the 1.2775-65 region, which if broken will reaffirm the bearish bias and set the stage for a slide towards challenging the 1.2700 round-figure mark. The pair then might accelerate the fall further towards testing its next major support near the 1.2645 horizontal zone.