GBP/USD Forecast: Bears looking to seize control amid Brexit worries, US-China tensions

The GBP/USD pair came under some fresh selling pressure on Wednesday and eroded a major part of the previous day's goodish intraday positive move to two-week tops. The UK PM spokesman reiterated government's position and said that the Brexit transition period will not be extended beyond December 31. The comments overshadowed the overnight report that the EU is willing to drop its ‘maximalist’ approach on fisheries in the next round of Brexit negotiations, starting next week, and took its toll on the sterling.

This comes amid concerns about worsening US-China relations, which benefitted the US dollar's relative safe-haven status against its British counterpart. This, in turn, contributed to the pair's sharp intraday fall of around 150 pips. Diplomatic tensions between the world's two largest economies escalated further after the US Secretary of State Mike Pompeo declared that Hong Kong to be no longer autonomous from China and does not warrant special treatment under the US law. The latest development fueled worries over the standoff between the US and China, which could have large ramifications for the global economy.

However, the optimism over a potential COVID-19 vaccine remained supportive of the upbeat market mood, which kept a lid on any runaway rally for the greenback and helped limit deeper losses. The pair managed to find decent support near the 1.2200 mark and settled over 50 pips off daily lows. The pair built on the overnight bounce and gained some follow-through traction during the Asian session on Thursday. The pair was last seen hovering around the 1.2275 region and remains at the mercy of the USD price dynamics amid absent relevant market moving economic releases from the UK.

Later during the early North American session, investors will look forward to a slew of important US macro data for some meaningful trading impetus. Thursday's US economic docket highlights the release of the second estimate of Q1 GDP, Durable Goods Orders for April and the Initial Weekly Jobless Claims.

Short-term technical outlook

From a technical perspective, the pair on Wednesday faced rejection near an important confluence resistance comprising of 50% Fibonacci level of the 1.2644-1.2076 fall and 200-period SMA on the 4-hourly chart. Bulls, however, managed to defend 23.6% Fibo. level support near the 1.2200 mark, which should now act as a key pivotal point for the pair’s next leg of a directional move. A convincing breakthrough the mentioned level, leading to a subsequent weakness below the 1.2180-70 horizontal support, might be seen as a fresh trigger for bearish traders. The pair might then accelerate the fall back towards the 1.2100 mark en-route multi-week lows, around the 1.2075 region.

On the flip side, Immediate resistance is pegged near the 1.2295-1.2300 area (38.2% Fibo. level), above which the pair is likely to make a fresh attempt to retest the 1.2360-65 confluence hurdle. Some follow-through buying now seems to open the room for additional gains and has the potential to lift the pair further towards reclaiming the 1.2400 round-figure mark. The momentum could further get extended towards the 1.2430-40 supply zone, which coincides with 61.8% Fibo. level.