GBP/USD Forecast: Double-bottom at risk as lockdown likely to outweigh Brexit hopes

Is France ready to fry fewer fish? Reports about progress on the sensitive issues of fisheries – perhaps due to a compromise from Paris – has been holding the pound from falling. However, this temporary reprieve may fizzle out.

First, EU and UK negotiators have had their bouts of optimism but these were often followed by reports of disagreements and occasionally break up in the talks. Yet even if a deal between Brussels and London are near, sterling grapples with other issues. 

UK Prime Minister Boris Johnson announced a nationwide lockdown in England – a complete reversal from his previous stance, saying that shuttering would be a disaster. Parliament is set to approve the restrictions designed to curb the spread of COVID-19 on Wednesday, paving the way for a month-long lockdown from Thursday. 

Britain is struggling with a surge in cases, infections, and hospitalizations, with current figures surpassing the government's "reasonable best-case scenario." If confirmed by the House of Commons, the shuttering will take place just as the Bank of England announces its rate decision on "Super Thursday." The BOE could follow through on its talk and set sub-zero borrowing costs, further weighing on sterling. 

Source: FT

On the other side of the pond, tensions have reached elevated levels ahead of the elections. President Donald Trump continues trailing rival Joe Biden – yet the race is tighter in swing states than on the national level. Nate Silver's FiveThirtyEight gives the Democrat an 89% chance of winning – yet investors remain skeptical of surveys after Trump's surprising win in 2016. 

Markets are eyeing a large stimulus bill, which would require not only a Biden victory but also for his party to win the Senate. where the race is closer.

Source: FiveThirtyEight

Over 94 million Americans have already voted, taking advantage of early an mail-in voting. That consists of 68% of the total vote count in 2016. Florida, the eternal swing state, has a high turnout and is already processing votes. It should provide an early read, but all eyes this year are on Pennsylvania, which has the highest chance of being the tipping-point state. 

For the Senate, North Carolina is of high interest, and there are additional states to watch. 

See 2020 Elections: Three states traders should watch, plus places that could provide surprises

Markets fear the prospects of a contested election – in which Trump declares victory before all the votes are counted and/or the race goes down to the wire or to the courts. Such concerns are boosting the greenback. 

While the greenback could fall in a relief rally, that would not happen until there is a clear result. 

On the data front, Markit's final UK Manufacturing Purchasing Managers' Index for October marginally beat estimates with 53.7 points, up from 53.3 originally reported. The industrial sector has likely continued expanding in the US as well, with the ISM Manufacturing PMI set to hold above 55 points. 

US October Manufacturing PMI Preview: Eyes on the New Orders Index

Overall, covid and politics are set to continue dominating trading, and that may weigh on cable.

GBP/USD Technical Analysis

Pound/dollar has dipped below 1.2865, a double-bottom recorded during October. While the break is yet to be confirmed, pressure is mounting. Momentum on the four-hour chart is to the downside, and the currency pair failed to break above the 200 Simple Moving Average. Moreover, the Relative Strength Index is above 30, thus outside oversold conditions. 

All in all, bears are in control.

Below 1.2865, the next support lines were last seen in September and were stepping stones on the way up. These include 1.28 and 1.2770, and 1.2665. 

Some resistance is at 1.2880, which was a low point last week. It is followed by 1.2985, a wing high, and then by 1.3020.