GBP/USD Forecast: Depressed by quadruple Brexit divisions, above critical support

Splits within Britain's main parties are common, and so are ones between the EU's 27 member states. But when the pro-Remain "People's Vote" group is split – that is an escalation in uncertainty that adds further pressure on the pound. Nevertheless, some clarity could come within the next 24 hours. 

1) People's Vote split – amendments or GNU?

The pro-Remain Liberal Democrats have tabled an amendment to the Queen's speech that would force a second referendum. While markets may benefit if such a move succeeds, some in the People's Vote camp are unhappy, as such a move "kills" the option of replacing the government. A Government of National Unity (GNU) is one of the options. 

That is the latest split that also affects the opposition Labour party.

2) Labour split – elections or amendments?

The opposition has long-called for elections, and some members support that option. They hope Labour may succeed, as in 2017. Back then, leader Jeremy Corbyn succeeded in changing the agenda to health and education, pushing Brexit down. The Conservatives lost their majority back then. 

Others look at unfavorable polling numbers and fear that a Tory victory may not only cause some to lose their seats but also to ram through a hard Brexit. Rebecca Long-Bailey, a member of Corbyn's shadow cabinet, has been sending mixed messages in different television shows – reflecting the uncertainty. 

While Labour has proved to have significant power in parliament, the ruling Conservatives have more influence, and they are split as well.

3) Cabinet split – elections or legislation?

Prime Minister Boris Johnson is unsure if to pursue elections – just before Christmas – or try to push through with the Withdrawal Act Bill (WAB). The original plan was to capitalize on his lead in the polls. However, the large majority that he received in the first reading of the WAB has changed the minds of some of his advisers.

The row in Downing Street and between cabinet members is out in the open. The government will have to gamble in any case, amid many moving parts.

And everybody in the UK is waiting for the decision about a Brexit extension in the EU, that could "sharpen minds."

4) EU Split – an extension to November or January? 

France reportedly wants a short extension of several weeks to Brexit. President Emmanuel Macron has been pushing for tighter deadlines and expressing frustration with the UK for many months. On the other hand, Germany leans toward granting a three-month delay – as stated in the official British request sent by Johnson and forced by parliament.

In the EU's case, at least there is a potential deadline. Sources in Brussels have told reporters that the bloc may decide on Friday. 

EU leaders want a signal from the PM about his plans, and their decision may impact his plans.

A three-month extension to January 31, 2020, implies snap elections, allowing the new government to implement its policies. A short extension to November 15 will push MPs to go through the motions and try to approve – perhaps with amendments – the Brexit deal. 

All in all, considerable uncertainty is weighing on the pound. 

Beyond Brexit, a big bulk of US data is of interest today with Durable Goods Orders standing out.

See US September Durable Goods Orders Preview: Business spending continues to restrain durable goods

GBP/USD Technical Analysis

GBP/USD is drifting lower, setting lower highs and higher lows. Momentum on the four-hour chart remains to the downside, but the currency pair holds above the 50, 100, and 200 Simple Moving Averages. 

Significant support awaits at 1.2840, which is the weekly low, a support line from last week, and it also converges with the 50 SMA. 

Below this line, 1.28 capped GBP/USD on its way up. It is followed by 1.2750, which provided support last week, and by 1.2706, another swing high.

Resistance awaits at 1.2950, which is the daily high. Next, we find 1.2989, last week's peak, followed by the five-month high of 1.3013.