GBP/USD Forecast: Brexit gloom and dollar domination pound the pound

GBP/USD is pressured as Brexit talks remain stuck.
Carney's comments and upbeat data fail to help as the focus shifts to the US.
The technical picture is bearish for cable.

Yohay Elam FXStreet

GBP/USD is trading in the lower part of the 1.3100 handle. The primary driver of the most recent slide stems from talks in Brussels. UK Attorney General Geoffrey Cox and Brexit Secretary Steven Barclay met Chief EU Negotiator Michel Barnier. After three hours of negotiations, the media was told that there was no breakthrough.

Expectations were low from the outset. The UK wants legally-binding changes to the Irish Backstop, setting a time-limit or an exit mechanism in the Withdrawal Agreement (WA), while the EU is only ready to offer clarifications and reassurances to the Political Declaration (PD).

UK PM Theresa May plans to bring a revised accord to Parliament on March 12th, and the new agreement may be all too similar to the old one. Will she tell the House of Commons that she has no new deal? Everything is possible as her Conservative Party is torn between the hard-Brexiteers and Remain supporters.

The news from the Belgian capital overshadowed positive developments. Markit's Services PMI came out at 51.3, better than expected and reflecting growth, albeit meager. Also, Bank of England Governor Mark Carney said that the path of rate hikes might be higher than markets expect. It is important to note that the BOE would like to raise rates given the current economic situation, but Brexit uncertainty paralyzes everything, including the Bank.

Looking ahead

Further developments on the Brexit front will be eyed.

Pound/dollar is down also due to US Dollar strength which originates from robust data. The ISM Non-Manufacturing PMI came out at 59.7 points, significantly above expectations and pointing to a rebound in America's largest sector in February. Also, New Home Sales stood at 621K annualized in December, allaying fears of a substantial downturn in the housing sector, concerns coming from other weak data from the industry.

Apart from Brexit, a critical US figure stands out today. The ADP Non-Farm Payrolls is projected to show a more moderate increase in private sector job growth in February after a leap of 213K in January. The figure serves as a crucial indicator ahead of Friday's all-important official Non-Farm Payrolls report.

GBP/USD Technical Analysis

GBP/USD dropped below the 50 Simple Moving Average on the four-hour chart and Momentum is decidedly to the downside. Both are bearish signs. The Relative Strength Index is still above 30, thus not exposing oversold conditions.

Support is at the round number of 1.3100 which supported the pair on Tuesday. The next level to watch is 1.3050 which provided some support in late February and meets the rising 200 SMA. 1.3010 cushioned cable in mid-February and is followed by the swing low fo 1.2970 seen later last month.

1.3150 supported the pair on Tuesday and is fought over at the time of writing. 1.3200 was the high point on Tuesday and also a round number. 1.3270 was the peak on Mondy, before GBP/USD closed the gap. 1.3350 is the high point recorded late in February.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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