GBP/USD Forecast: Brextension blues places the pound higher, but bears are gaining ground

GBP/USD is trading above 1.3100 after enduring high volatility on Thursday, trading in a range of over 200 pips.

Brextension

European Union leaders did not accept UK PM Theresa May's request to push Brexit back to June 30th and set a different timeline.

Brexit is pushed back from March 29th to at least April 12th. May will make another attempt to have Parliament approve the Brexit accord in the third Meaningful Vote, dubbed MV3. In case she succeeds, the UK will leave the EU on May 22nd, just before the European Parliament elections on May 26th.

If she fails, her government will have until April 12th to set a new path. April 12th represents a two-week delay, and it is also the last date for the UK to organize for the EU elections. The EU also insisted that the Withdrawal Agreement (WA) agreed in November 2018 will not be changed.

Sterling bounced from the lows as Brexit is no longer one week away, but uncertainty remains high.

What happens if Parliament rejects again?

There are no indications that May can get her deal approved in Parliament.

The Northern Irish DUP reiterated its objection to the Irish Backstop clause and members of her own party remain opposed as well. Also, it is currently unclear if May can even bring the deal to the House after Speaker John Bercow said the exact same motion could not undergo a repeat vote.

In long and fraught discussions on Thursday, she refused to say what she will do in the likely case the deal will fail. May may opt for a no-deal Brexit on April 12th. This is what some hard-Brexiteers want and reportedly what May is leaning towards. 

The other option is that the UK stays for longer, participates in the European Parliament elections, and a new leader probably takes over. A petition to revoke Article 50 and cancel Brexit has already garnered around 2.5 million votes. On Saturday, supporters of a second referendum will hold a rally in London.

At the moment, it seems that the pound is fearful of a hard Brexit on April 12th and not very hopeful of another Brexit delay, or "Brextension."

Elsewhere, the US Dollar is taking a breather from its gains after recovering from the dovish Fed decision. The Bank of England decided to leave its policy unchanged, remaining optimistic about the economy but expressing concern about Brexit uncertainty. UK Retail Sales beat expectations with 0.4%.

The calendar features the BOE's Quarterly Bulletin and the US Markit PMIs and Existing Home Sales. Reports and rumors around Brexit are set to have the upper hand.

GBP/USD Technical Analysis

The Relative Strength Index (RSI) on the four-hour chart is above 30, thus not reflecting oversold conditions anymore, but leans lower. Momentum remains to the downside and cable trades between the 50 and 200 Simple Moving Average. All in all, the trend is slightly bearish.

The round number of 1.3100 provided some support in early March. 1.3005 was the low point on Thursday and was also a swing low last week. Further down, 1.2960 was a double bottom, and 1.2895 was a support line earlier. 

Resistance awaits at 1.3180 that was a swing low early this week. 1.3250 was a swing high on Wednesday and 1.3315 was another swing high.More: GBP/USD sits on shaky ground after the Brexit delay — Confluence Detector