GBP/USD Forecast: Looking for a direction as the EU plays good cop, bad cop

GBP/USD is marginally up on the day, seemingly immune to the clock. The UK will exit the European Union without a deal this Friday unless something changes. A cliff-edge Brexit could send the pound off a cliff, but markets do not see that happening.

Dual negotiations

PM Theresa May officially asked for an extension on Friday. Once again, the embattled leader wants to leave on June 30th, just before the first session of the new European Parliament. And once again, the EU does not like it. 

Brussels wants an imminent exit or a long extension, perhaps until March 2020, with the UK taking part in the EU elections on May 26th, elections which need to be prepared from mid-April.

European leaders also demand a reason for the prolongation. They see London's inability to agree on anything and ask how will another couple of months solve the problem. All are talking about a long extension, but they play a "Good cop, bad cop" game.

Germany is the "good cop" with Chancellor Angela Merkel showing empathy, and France is the bad cop, with President Emmanuel Macron taking a tough stance despite his country's vulnerability to a hard-Brexit due to deep commercial ties.

Everything will be decided at the special EU Summit on Wednesday, April 10th. 

A reason for a delay may be found in talks between the government and the opposition if both significant British parties agree on a different path to Brexit. On Friday, Labour said that the Conservatives did not change their positions, but will keep on talking. Fresh reports suggest that May may move towards a permanent Customs Union, a central demand from Labour's Jeremy Corbyn.

If both parties reach a path forward, it could convince the Europeans that something can pass in the House of Commons and perhaps a short extension will be granted. Otherwise, the thinking is that the EU will push for a long extension. However, the default option is a hard-Brexit in four days.

GBP/USD Technical Analysis

GBP/USD is trading below both the 50 Simple Moving Average and the 200 one on the four-hour chart. Also, the Relative Strength Index is leaning lower, and downside Momentum is accelerating. All in the technical picture is bearish.

Support awaits at 1.3115 that support GBP/USD last week. It is followed by 1.2980 which was the low point on March 29th. Further down, 1.2895 and 1.2830 await.

Looking up, 1.3070 is the recent high, and it is followed by 1.3125 that was a swing high on Friday. 1.3150 was a peak early last week, and 1.3195 is the high point in April. 

More: GBP/USD rise may be temporary as the downside seems more appealing — Confluence Detector