GBP/USD Forecast: Break or bounce ahead of double-top? Boris holds the keys

• GBP/USD has been extending its gains amid an upbeat market mood.
• PM Johnson's decisions on Hong Kong and Brexit and US figures will likely set the tone.
• Wednesday's four-hour chart is pointing to overbought conditions ahead of a critical double-top.

Opening optimism – that is the downward driver of the dollar and what is causing cable to climb – but the double-top of 1.2645 could be too much to ask. The next steps depend on UK Prime Minister Boris Johnson on several fronts.

Brexit: Hopes for mutual concessions have so far failed to materialize. Talks between the EU and the UK continue via video and the current round is set to end on Friday. Brussels has its hopes on a dramatic intervention by Johnson, similar to his agreement to allow a customs border between Northern Ireland and the rest of Britain.

The PM will meet European Commission President Ursula von der Leyen later in June. Will he trigger a breakthrough? The UK insisted it would not extend the Brexit transition period beyond year-end, with the UK potentially reverting to World Trade Organization rules.

Hong Kong: With the focus on protests in the US, China's move to grab more power in Hong Kong and protests in the city-state have faded from the headlines. However, Johnson has been raising his voice against human rights violations in the former colony.

That may aggravate relations with Beijing, at a time that Britain needs more global partners following Brexit. Is his move just a token one? Or is he in for a full confrontation with the world's second-largest economy? That remains an open question.

Coronavirus statistics have continued improving in the UK, but the pace remains frustratingly slow. The PM is trying to balance economic needs with health concerns. The disease has disproportionately hit minorities, according to a new report. Contrary to American leadership, UK officials expressed concern. However, the news may cause discontent, joining the anger about the PM adviser's violation of lockdown rules he helped devise. That limits the government's maneuvering space. 

Protests against racial discrimination continued in the US, albeit with a far more peaceful tone. Stock markets shrugged off the unrest – and its potential to increase COVID-19 contagion – as US states continue opening. Alongside support from the Federal Reserve, investors remain optimistic and sell-off the US dollar. 

The recovery of the world's largest economy will be tested later on Wednesday with two critical release, both serving as hints toward Friday's all-important jobs report. ADP's private-sector Non-Farm Payrolls are set to show a loss of around nine million positions, and the ISM Non-Manufacturing Purchasing Managers' Index is estimated to have advanced in May.

See:

• ADP Preview: Half as bad as April is still terrible but markets have moved on
• ISM Non-Manufacturing PMI Preview: If the bottom is in, is this higher?

Markit's final UK Services PMI came out at 29, marginally above expectations and still reflecting contraction in the UK's largest sector.

GBP/USD Technical Analysis 

The Relative Strength Index on the four-hour chart is above 70, pointing to overbought conditions and potential downfall. Cable has been approaching the critical 1.2645 level, a double top recorded in April. Reaching it and crossing it seems unlikely in the short-term.

However, momentum remains to the upside and the currency pair is trading above the 50, 100, and 200 Simple Moving Averages. After a significant correction, GBP/USD may have room to rise. 

Above 1.2645, the next lines are 1.2720 and 1.2780, which date back to March.

Support awaits at 1.2580, a temporary cap on the way up, followed by 1.2510, another stepping stone on the way up. Further down, 1.2460 provided support and so did 1.24.

See Fibonacci lines are golden, a gold trading idea, and more – Interview with Chris Svorcik