GBP/USD Forecast: Eyeing 1.2525 after smashing uptrend resistance on Brexit hopes

A backstop breakthrough has been boosting the pound – despite its low probability. The British press has reported that the UK and the EU may agree to maintain Northern Ireland under the European customs regime – separating it from Britain. More importantly, the Democratic Unionist Party (DUP) – on which prime minister Boris Johnson relies – may be willing to accept it. 

However, the DUP was quick to deny it would accept any agreement that would risk the union of four nations. Despite the denials, the pound has enjoyed an upswing. As Johnson has already lost his majority in parliament, losing an additional ten DUP MPs may not matter that much at this point. Moreover, the membership of Johnson's Conservative Party has only Brexit on their minds – sacrificing the union is secondary – according to polls from earlier this summer. 

Another reason for the pound's upswing is the EU's willingness to approve an extension to Article 50 – postponing Brexit. Xavier Bettel, Luxembourg's PM, said on Thursday that there is no reason to grant an extension. His words were echoed by the David Sassoli, President of the European Parliament. However, a leaked document has revealed that Brussels is ready to postpone Brexit for various reasons, including an election, a referendum – and also to avoid a no-deal exit.

On the other side of the Atlantic, the greenback is losing some ground amid hopes for an "interim" deal between the US and China. President Donald Trump is considering an accord which includes lower tariffs and commitments from China on the sensitive issue of Intellectual Property – a limited scope. Defusing trade tensions may help him get re-elected. Markets are cheering these prospects and the risk-on mood is weighing on the greenback.

While Brexit and trade remain central, US data may impact GBP/USD as well. Retail sales are projected to rise at a moderate pace in August after jumping in July. On the other hand, the University of Michigan's Consumer Sentiment Index for September is forecast to recover.

• US Retail Sales Preview: Consumer confidence equals sales
• US Michigan Consumer Sentiment Preview: Who's got trouble?

GBP/USD Technical Analysis

GBP/USD has broken above an uptrend resistance line that has accompanied it since mid-August. The Relative Strength Index (RSI) on the four-hour chart remains below 70 – thus not indicating ovrbought conditions. Moreover, the pair is trading above the 50, 100, and 200 Simple Moving Averages. 

Initial resistance awaits at 1.2480, which was a support line in mid-July. More importantly, 1.2525 capped cable no less than three times that month. Further above, 1.2580 held it down earlier in July. 

Some support awaits at 1.2420 which was a support line in mid-July. The next line is 1.2380, which provided support in July and also capped it in recent days. The next level to watch is 1.2355, which held it down last week.