GBP/USD Forecast: never about data, always about Brexit

• EU Barnier and UK May have toughened their positions, six-month ahead of the divorce date.
• GBP/USD with room to extend decline down to 1.2880 Fibonacci support next week.

After last Friday's collapse of Brexit negotiations and markets' players rushing to sell the Pound, policymakers tried this week to pour some cold water over such concerns, so far with limited success. The GBP/USD pair advanced during the first half of the week on dollar's weakness, rather than on self-strength, but a return of dollar's demand, this last backed by the Fed and solid local data, pushed the pair to a fresh 2-week low. The Sterling has been quite reluctant to give ground to the greenback when this last comes on demand, as movements gyrate solely around Brexit these last few months.

The EU Chief Negotiator, Michel Barnier crossed the wires, saying that while they are looking for a new partnership that respects the UK's sovereignty, they will also focus in protecting EU's founding principles, including the integrity of the single market, in a clear direct response to PM May. The UK leader, on the other hand, reiterated that a no-deal Brexit would be preferable to the EU's proposals that break up the United Kingdom. She later added that the UK is not seeking for a partial membership of the single market.

There is one and only issue that prevents the UK and the EU to come up with a deal: the Irish border. The UK doesn't want any kind of customs barrier in the Island, while the EU sees no chances of extending the backstop to the whole kingdom. With just six months ahead of the divorce date, there's no common ground to solve it.

UK data released this week didn't help the Pound, as poor readings were seen in different sectors. The most relevant one, however, was the final version of Q2 GDP confirming a 0.4% quarterly growth, while Q1 growth was revised down to 0.1%, taking down the annual economic growth to 1.2%, below the 1.3% expected. Total business investment in the three months to June, plunged 0.7% while Q1 reading was revised to -0.5%

The upcoming week will bring September Markit Manufacturing, Services, and Construction PMI, with misses in such figures able to hurt the Pound further.

 GBP/USD technical outlook

The weekly chart for the GBP/USD pair shows that it posted a lower high and a lower one when compared to the previous one, while, also that an attempt to regain ground above the 50% retracement of the 2016/2018 rally at around 1.3170, was quickly reversed. Technical readings in the mentioned chart kept the risk leaned to the downside, as the price was also unable to settle above a bearish 20 SMA while trading far below the 200 EMA. Indicators have pared their recoveries within negative territory, with the RSI already gaining downward traction, currently at 42.

In the daily chart, the pair broke below a bullish 20 DMA at the end of the week, now offering a first dynamic resistance at around 1.3090, while technical indicators are currently entering bearish ground with nice downward slopes. The 1.3000 psychological level is the immediate support, and below it, particularly on an escalation of Brexit worries, could see the pair falling next week to the next relevant support, the 1.2880 region which stands for the 61.8% retracement of the mentioned yearly rally. Above 1.3090, the next resistance is the mentioned 1.3170, followed by the 1.3220/50 price zone.

 

 

GBP/USD sentiment poll

Brexit concerns are reflected in the FXStreet Forecast Poll, as bears took over the pair, now seen falling in the three time-frames under study, although with averages targets close to 1.3000, as nobody seems willing to take any bet until knowing what kind of Brexit we are going to have. In the weekly perspective, bears stand for 54%, while in the monthly one they account a 48%, up from 27% and 42% respectively.  In the quarterly view, bears are up to 46% from 40%, with the average target distorted by Nomura bank, who seems to be firmly convinced that there won't be a hard-Brexit and sees the pair at 1.48. However, the bank is not alone as the Overview chart shows that in the quarterly view most targets come at around 1.3500. Shorter moving averages lack clear directional strength, with mild downward slopes.

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