GBP/USD Forecast: Bullishness fades as Brexit headlines return to spotlight

GBP/USD has been having a hard time reclaiming 1.3800.
Focus shifts to Brexit talks ahead of key US data.
Near-term technical outlook suggests that the bullish momentum is losing strength.

Eren Sengezer FXStreet

The British pound has edged higher in the early European session on Monday but it's too early to say that GBP/USD is looking to extend its recovery given the risks posed by upcoming Brexit talks.

Over the weekend, British Prime Minister Boris Johnson's office acknowledged that they had constructive talks with the EU regarding the Northern Ireland protocol. However, governance - the role of the European Court of Justice's in upholding and implementing trade rules, remains a major issue in talks.

On Tuesday, sides are expected to meet in London and GBP/USD could remain on the back foot if the UK refrains from hinting at a compromise on post-Brexit trade arrangements. On the flip side, positive Brexit-related developments could provide a boost to GBP/USD at least until the US Bureau of Economic Analysis releases its first estimate of the third-quarter Gross Domestic Product growth.

Until investors can find out what's going on with Brexit, technical levels are likely to provide a directional clue to GBP/USD.

Meanwhile, the dollar is holding its ground as rising US Treasury bond yields continue to counter the negative impact of the risk-positive market environment. Market participants are unlikely to pay any attention to the Chicago Fed's National Activity Index and the Dallas Fed's Manufacturing Survey data later in the day.

GBP/USD technical analysis

After breaking below the ascending regression channel coming from late September on Friday, GBP/USD struggled to return within that channel. Additionally, the last 10 candles on the four-hour chart closed below the 20-period SMA, confirming the view that the bullish momentum is losing strength. Finally, the Relative Strength Index (RSI) indicator on the same chart has retreated to 50 area.

On the downside, the initial support is located at 1.3740 (Fibonacci 23.6% retracement of the latest uptrend) ahead of 13700 (psychological level, 200-period SMA) and 1.3680 (100-day SMA).

The first resistance aligns at 1.3800 (lower line of ascending channel, psychological level, 20-period SMA). In case the pair holds above that level and manages to flip it into support, it could aim for 1.3830/40 (October 20 high, October 21 high, middle line of the channel) and 1.3880 (static level).

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Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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