GBP/USD Forecast: Near-term outlook remains uncertain ahead of UK-EU Brexit negotiations

• GBP/USD witnessed some intraday selling on Thursday following the UK's Brexit negotiation mandate.
• Collapsing US bond yields, Fed rate cut speculations weighed on the USD and helped limit the downside.
• Investors are likely to refrain from placing any aggressive bets ahead of the UK-EU Brexit negotiations.

The GBP/USD pair failed to capitalize on its early uptick on Thursday, rather met with some fresh supply near the 1.2950 region and dropped to one-week lows. The British pound started losing ground after the UK published its mandate outlining its priorities for trade talks with the European Union. The document stated that the British Prime Minister Boris Johnson could walk away from trade talks in June unless there is the "broad outline" of an agreement.

The Brexit negotiating guidelines also mentioned that the UK should not be required to follow EU standards – in line with the precedent of the EU-Canada agreement. Against the backdrop of a deep division between the two sides, the deadline for progress and threat to walk away on WTO rules turned out to be a key factor that weighed on the sterling. The pair touched an intraday low level of 1.2860, albeit the downside remained cushioned amid persistent US dollar selling.

The coronavirus fears-led brutal selling in equities continued boosting demand for traditional safe-haven assets and dragged the US Treasury bond yields to fresh record lows. This coupled with speculations that the Fed will cut interest rates to offset the impact of a spreading coronavirus exerted some heavy pressure on the greenback. Meanwhile, the release of mostly in line US Q4 2019 GDP growth figures and better-than-expected US Durable Goods Orders data also did little to provide any respite to the USD bulls or ease the bearish pressure.

The pair finally settled with modest losses and remained confined in a narrow trading band, just below the 1.2900 round-figure mark through the Asian session on Friday. In absence of any major market-moving economic releases from the UK, the incoming Brexit-headlines might continue to play a key role in influencing the GBP price dynamics. Later during the early North-American session, the US economic docket – featuring the release of Personal Income/Spending data, Core PCE Price Index and Chicago PMI – might produce some trading opportunities on the last day of the week.

Apart from this, market participants will keep a close watch on any fresh developments surrounding the coronavirus saga, which remains a key theme in the global financial markets and continue to infuse some volatility in the FX market. The pair, however, seems unlikely to make any big moves as investors might refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of the EU-UK trade talks starting Monday.

Short-term technical outlook

From a technical perspective, nothing seems to have changed much for the pair and the near-term bias remains tilted in favour of bearish traders. However, the fact that the pair has struggled to capitalize on its move in either direction warrants some caution before placing any aggressive bets. Bearish traders are likely to wait for a sustained weakness below YTD lows, around mid-1.2800s, below which the pair might turn vulnerable to accelerate the fall further towards the 1.2800 mark en-route the 1.2780-70 horizontal support zone.

On the flip side, the 1.2950-60 region might continue to act as an immediate resistance, which is closely followed a cluster of hurdles between the 1.2975-1.3025 region. The latter coincides with 50-day SMA pivotal point, above which the pair is likely to aim towards reclaiming the 1.3100 mark before eventually darting towards a resistance marked by over two-month-old resistance near the 1.3140-50 region.