GBP/USD Forecast: Investors eye Brexit headlines as next catalyst

GBP/USD has been treading water following technical correction.
Heightened concerns over the UK triggering Article 16 limit the pound's recovery.
The greenback holds its ground ahead of US inflation data.

Eren Sengezer FXStreet

GBP/USD remains at the mercy of the dollar's market valuation as heightened concerns over the UK triggering Article 16 don't allow the British pound to find demand.

Following Monday's decisive rebound, GBP/USD failed to reclaim 1.3600 with the greenback holding its ground against its major rivals amid the negative shift witnessed in market sentiment. Reflecting the dollar's resilience, the US Dollar Index trades in the positive territory above 94.00 in the early European session on Wednesday.

The European Union made it clear that there will be "serious consequences" if the UK were to trigger Article 16. Ireland’s Foreign Minister Simon Coveney even said that they could shelve the whole Brexit agreement.

Meanwhile, The UK's National Institute of Economic and Social Research (NIESR) noted that they expect the Bank of England (BoE) to lift the policy rate to 0.5% by the second quarter of 2022. The fact that this headline was ignored by markets shows that participants are awaiting Brexit developments before reassessing the BoE's policy outlook and its impact on the pound.

Later in the day, the October Consumer Price Index (CPI) data from the US will be looked upon for fresh impetus. Unless the annual Core CPI misses the market expectation of 4% by a wide margin, the dollar is preserve its strength and limit GBP/USD's upside.

GBP/USD Technical Analysis

Initial resistance is located at 1.3570 (Fibonacci 61.8% retracement of the latest uptrend). Despite rising above that level on Tuesday, GBP/USD retreated and candles on the four-hour chart closed below this hurdle, showing the buyers' unwillingness to commit to a steady recovery. On the same chart, the Relative Strength Index (RSI) is moving sideways near 50.

On the downside, the 20-period SMA could be seen as first support at 1.3520 ahead of 1.3500 (psychological level) and 1.3475 (static level).

In case buyers manage to flip 1.3570 into support, additional gains toward 1.3600 (50-period SMA) and 1.3630 (Fibonacci 50% retracement of the latest uptrend) could be witnessed.

Author

Eren Sengezer

FXStreet

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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