GBP/USD Forecast: Bulls eyeing higher levels, shrugging off Mid-East, Brexit uncertainties

"Historic nightmare" is what Iran has promised the US – and markets seem to end their calm, sending the safe-haven US dollar higher. Investors had seemed to move away from focusing on the Middle East on Monday, allowing for a relief rally.

Iranian officials added that they are monitoring US bases that surround it, sending a warning sign of a potential escalation. Iraq – where the US killing of Iranian general Qassem Suleimani took place – is the main battleground. An erroneous Pentagon letter hinting at the possible evacuation of American forces from the war-torn country caused confusion on Monday. 

While the fresh threats from Tehran have rattled markets, investors' fears may diminish again without imminent military action. In that case, GBP/USD has room to rise.

Brexit is back

The UK House of Commons returns from the holidays and is set to advance the Brexit Withdrawal Bill. Prime Minister Boris Johnson's Conservatives command a broad majority in parliament, so any opposition amendments will likely be rejected swiftly.

The UK is set to leave the EU on January 31 but investors are already eyeing the next phase – the future trade relationship. Without a new deal, Britain will fall back to World Trade Organization (WTO) rules at the end of the year, when the transition period ends.

Ursula von der Leyen, President of the European Commission, heads to London on Wednesday to meet the PM and kick off discussions on the next phase. 

The UK economy received an encouraging sign on Monday. Markit's final Purchasing Managers' Index for the services sector was revised higher to 50 points – the threshold separating expansion from contraction. 

The parallel US ISM Non-Manufacturing PMI for December will likely rock markets later on. The forward-looking gauge serves as a hint toward Friday's Non-Farm Payrolls report and is set to rise. However, some fear that it will follow the footsteps of the manufacturing PMI, which fell to the lowest levels since 2009.

See ISM Non-Manufacturing PMI  Preview: Last call for the concerned?

Overall, Mid-East tensions, Brexit deliberations, and data are all set to move pound/dollar.

GBP/USD Technical Analysis

Cable is trading above the 50, 100, and 200 Simple Moving Averages on the four-hour chart and downside momentum is waning. All in all, the picture is moderately bullish.

Immediate resistance awaits at the fresh high of 1.32, which is also a round number. It is followed by the late 2019 peak of 1.3285. The mid-December peaks of 1.3355, 1.3425, and 1.3510 are next.

Support is at 1.3150, which held GBP/USD down in late December. Next, we find 1.3050, which provided support in early January and was a swing low in December. 1.3010 and 1.2985 are next.