GBP/USD Forecast: Can renewed Brexit optimism save the pound?

  • GBP/USD has been having a tough time staging a rebound.
  • Renewed Brexit optimism could help the British pound find demand.
  • The dollar is likely to stay resilient following the hot inflation report.

GBP/USD has extended slide to a fresh 2021 low early Friday before going into a consolidation phase. The pair's potential recovery depends on Brexit developments as the dollar is likely to hold its ground with investors pricing a 72% chance of a Federal Reserve rate hike by June 2022.

Ireland’s Foreign Minister Simon Coveney said on Thursday that they still have time to find a solution to Brexit's Northern Ireland (NI) protocol. Moreover, the Telegraph reported that the European Union was planning to improve its offer to reduce customs checks at the NI border. 

On another positive note, the UK Times claimed that David Frost, the British minister responsible for implementing the Brexit deal, looks to engage in intensive talks with the EU over the next few weeks to reach an agreement.

So far, these developments have failed to provide a boost to the British pound but bears could move to the sidelines in case investors shift their focus to Brexit from the policy divergence between the Fed and the Bank of England.

Ahead of the weekend, the University of Michigan's flash Consumer Sentiment Index data for November will be featured in the US economic docket. At the time of press, US stock index futures were up between 0.15% and 0.25%. Unless the consumer confidence data causes a negative shift in risk sentiment, the upbeat market mood and week-end flows could cause the dollar to lose some interest and pave the way for a technical correction in GBP/USD.

GBP/USD Technical Analysis

On the four-hour chart, GBP/USD continues to trade in the descending regression channel coming from late October. The mid-point of the channel is forming resistance at 1.3400 and the pair could climb higher toward 1.3440, where the upper limit of the channel meets a previous support level. Only a daily close above the latter could open the door for a more decisive rebound toward 1.3500 (psychological level).

On the downside, 1.3360 (static level) aligns as initial support ahead of 1.3300 (psychological level). In the meantime, the Relative Strength (RSI) indicator is trying to rise above 30, suggesting that there is more room on the upside before the pair corrects the oversold conditions.

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