GBP/USD Forecast: Dead-cat bounce amid non-stop Brexit headlines

The GBP/USD is attempting a recovery after the big fall on Friday.
The British government is considering its next steps.
The technical picture is not as bullish as it used to be.

Yohay Elam FXStreet

The GBP/USD is trading around 1.3100, trying to make its way back up after crashing on Friday. The EU rejected Britain's Chequers plan for Brexit in an acrimonious summit in Salzburg. UK PM Theresa May responded with a defiant televised speech on Friday and sent Sterling tumbling down.

Reports about potential snap elections in November emerged over the weekend in what seems like an attempt to quiet down the hard-Brexiteers. The opposition Labour Party holds its annual conference this week and may consider supporting a second Brexit referendum.

In the meantime, the UK government convenes to discuss the situation. Brexit Secretary Dominic Raab expressed optimism about getting a good Brexit deal earlier in the day and helped the Pound's recovery. Negotiations continue ahead of the EU Summit on October 18th.

Elsewhere, the US is contemplating a broadside against China, tackling issues such as intellectual property, economic espionage, cyber-security, and more. The move, reported by Axios, comes in addition to the ongoing trade wars. The fresh tariffs on $200 billion of Chinese goods go into effect today. China canceled trade talks with the US.

GBP/USD Technical Analysis

The GBP/USD dropped below the 50 Simple Moving Average on the four-hour chart. The line is around 1.3130, a level that separated ranges in previous sessions. Cable still holds its ground above the 200 SMA, but Momentum points to the downside and the Relative Strength Index (RSI) also lean lower.

1.3050 supported the pair on Friday and served as a resistance line in the past. The next significant support line is only at 1.2970 which helped the GBP/USD in early September. The next level to 1.2900 which cushioned the GBP/USD earlier.

Above 1.3130, the 1.3215 continues playing a role. It was a swing high last week and also capped the pair early in the summer. The round number of 1.3300 was the peak on Thursday and the highest level since July. Even higher, 1.3365 is notable.

More: GBP/USD next significant support only below 1.3000 — Confluence Detector

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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