GBP/USD Forecast: Brexit pummels pound, US politics could push it below 1.28

"Breach of the obligation of good faith" – these words by the EU are not only rhetoric but legal action. Ursula von der Leyen, President of the European Commission, announced that the bloc has sent a formal notice to the UK in response to the Internal Market Bill. That is the first move before taking Britain to court. 

The announcement follows the expiry of the EU's ultimatum to the UK over the legislation that knowingly violates the Brexit Withdrawal Agreement that Prime Minister Boris Johnson signed last year. 

Earlier, Reuters reported that negotiators failed to achieve a breakthrough in talks about future relations. Brussels and London have recently clashed over state aid, a topic joining a long list of issues. 

The pound was hit hard by the duo of Brexit disappointments, sending it closer to 1.28. Is the all the damning Brexit news priced into the pound? That remains an open question. An angry response from London could further exacerbate the falls. 

Until Johnson's government comments on von der Leyen's announcement, politics across the pond may return to moving the dollar. The safe-haven greenback retreated as Democrats and Republicans reported progress in negotiations over the next fiscal stimulus package. Aid to states and the total sum of the bill – Dems want more than $2 trillion and the GOP desires around $1.5 trillion – are the main stumbling blocks.

GBP/USD could fall below 1.28 if talks in Washington fail to achieve a deal or if investors' concerns about a contested election. President Donald Trump refused to say he would accept the election results and also supported a white supremacist group in the debate with Joe Biden. The Democrat retains his lead in both national and state polls. 

See 2020 Elections: How stocks, gold, dollar could move in four scenarios, nightmare one included

Data is also high on the agenda ahead of Friday's all-important Non-Farm Payrolls report. The first hint beat expectations – ADP's labor market report showed an increase of 749,000 positions in September, better than estimated.

The ISM Manufacturing Purchasing Managers' Index is projected to show ongoing recovery, but its employment component is predicted to remain depressed. These expectations may be too low.

See ISM Manufacturing PMI Preview: Low bar for upside surprise could turn dollar-positive

Weekly jobless claims, Personal Income, and Personal Spending are also of interest, even if they are unrelated to the NFP.

See US Personal Income, Expenditures and Initial Jobless Claims Preview: Old information, new stimulus?

Overall, politics continues stealing the show from data, and is likely to push GBP/USD lower.

GBP/USD Technical Analysis

Pound/dollar is capped under a downtrend resistance line that has been accompanying it since mid-September. It is approaching critical support at 1.28 – which is a round number, provided support earlier this week, and where the 200 Simple Moving Average meets the price. On the way down, cable lost the 100 SMA.

Below 1.28, further support awaits at 1.2685 and 1.2665. Resistance is at 1.2920, a swing high from early in the week, followed by 1.2950, the daily high.