GBP/USD Forecast: Near-term bullish outlook remains intact

The GBP/USD pair failed to make a daily close above 1.3700 on Thursday but buyers are not discouraged as the pair seems to have regathered its bullish momentum on Friday. At the time of press, GBP/USD was trading at its highest level in three weeks above 1.3730. 

After the European Union unveiled the proposed changes to the Northern Ireland protocol this week, Maroš Šefčovič, European Commission Vice President, and David Frost, the British minister responsible for implementing the Brexit deal, will meet in Brussels on Friday.

There are possible scenarios regarding Brexit and only one of them is likely to help the British pound preserve its strength.

British Prime Minister Boris Johnson could accept the changes to the protocol and send the GBP higher. In case the PM rejects it, investors could reassess their positions. Finally, Johnson could try to renegotiate the deal but this option, which had been downright dismissed by the EU, is unlikely to satisfy GBP bulls.

According to the Financial Times, EU countries has urged the EU Commission to prepare a contingency plan in case the UK suspends the NI protocol.

In the meantime, the greenback stays relatively resilient against its rivals following Wednesday's drop, suggesting that Brexit headlines could have a significant impact on GBP/USD movements. The benchmark 10-year US T-bond yield is up more than 1% on Friday and investors could have a tough time letting go of the greenback if yields continue to push higher.

September Retail Sales and the University of Michigan's preliminary October Sentiment Index data from the US will be looked upon for fresh impetus ahead of the weekend.

GBP/USD technical analysis

GBP/USD closed the last candle on the four-hour chart above the 200-period SMA and is currently testing the upper line of the ascending regression channel coming from late September at 1.3740. Although the near-term technical outlook remains bullish, the Relative Strength Index (RSI) indicator is, once again, closing in on the overbought area. 

On Thursday, the pair staged a 60-pip correction after the RSI touched 70 and a similar reaction could be expected.

1.3750 (September 23 high) aligns as the next resistance before the pair could target 1.3800 (psychological level). On the downside, 1.3700 (middle line of the regression channel, psychological level, 200-period SMA) could be seen as the first support before 1.3660 (lower line of the regression channel, 20-period SMA) and 1.3600 (psychological level/100-period SMA).