GBP/USD Forecast: Boris prevents pound from advancing, time for a fresh dive?

The Brexit bill passes the first hurdle – creating a wall of resistance for the pound. While the US dollar has been on the back foot across the board, GBP/USD has been unable to rise as the controversial legislation may derail a deal between the EU and the UK.

Prime Minister Boris Johnson's controversial Internal Markets bill – which knowingly violates the Brexit accord he signed only last year – passed the first vote with a majority of 77 MPs.

After 30 of the PM's Conservative MPs abstained and two voted against the legislation, others may follow. That provides hope to pound bulls, yet it cannot be taken for granted. Johnson's landslide victory in December means he has a good chance of turning the bill into law in next week's final vote. 

Brussels laid down an ultimatum to London – rescind the bill by the end of the month or face sanctions. The legislation unwinds Johnson's consent to creating a separate customs regime for Northern Ireland from the rest of the UK, which allows for refraining from having a border between NI to the Republic of Ireland, which is part of the bloc.

Free movement of people and goods is essential for maintaining the Good Friday peace agreement in the green island. US House Speaker Nancy Pelosi stated that Congress would reject any trade deal with the UK if peace is at risk.

GBP/USD has yet to hit new cycle lows – thanks to dollar weakness. The safe-have greenback is on the back foot after China published upbeat industrial output and retail sales figures for August. Consumption has topped pre-pandemic levels, showing that the world's second-largest economy is back on track.

Investors also continue cheering hopes for obtaining a coronavirus vaccine as several projects continue in full force.

UK labor market statistics are mixed. The unemployment rate rose from 3.9% to 4.1% in July – still a low level, sustained by the government's furlough scheme. Jobless claims increased by 73,700 in August, better than expected. 

The Bank of England is will take employment, the virus situation, and Brexit uncertainty into consideration when it announces its rate decision on Thursday. Investors await a fresh assessment of the economy. 

See BOE Preview: Fast recovery or trio of troubles? Bank's tone to set pound's direction

Tension is also mounting ahead of the Federal Reserve's announcement on Wednesday. The world's most powerful central bank is expected to leave rates unchanged and publish new economic forecasts. Jerome Powell, Chairman of the Federal Reserve, already laid out a new policy framework last month and may try not rocking the boat – yet markets are sensitive. 

Preview: How the Fed could drown markets while trying not to rock the boat

Overall, Brexit concerns are depressing sterling while other factors are playing second-fiddle in moving the pound. A worsening of the general mood could find a vulnerable pound. 

GBP/USD Technical Analysis

The downtrend continues – with the latest upswing looking like a necessary correction before the next dive. The Relative Strength Index on the four-hour chart has risen above 30, exiting oversold conditions and allowing for more falls. The 50 Simple Moving Average is extending its downfall after crossing below the 100 and 200 SMAs, and momentum remains negative. 

Some support awaits at the daily low of 1.2847, followed by September's trough of 1.2765. The next liens to watch are 1.2715 and 1.2665, dating back to early in the summer. 

Resistance is at 1.2920, Monday's high, followed by 1.3045, a stubborn cap from last week. Further above, 1.3150 and 1.3180 await cable.