GBP/USD Forecast: New four-month lows as May plots her fourth attempt to pass Brexit

GBP/USD extends its descent amid ongoing political uncertainty.
UK PM May convenes her cabinet to plot a last attempt to pass her Brexit deal.
The four-hour chart shows the currency pair still suffers oversold conditions.

Yohay Elam FXStreet

The saying "third time's a charm" did not apply to UK PM Theresa May's Brexit deal, but perhaps her fourth attempt may succeed. At least that is what she hopes, but chances are low and the pound remains depressed, hitting new four-month lows close to 1.2700.

May convenes her cabinet today in an attempt to find a formula that will convince members of the opposition Labour party to support the deal. While cross-party talks collapsed last week, she is still trying to woo MPs from the opposite side of parliament to vote in favor.

And while she tries to break the ranks of the opposition, the divisions within her own party are exposed. Chancellor of the Exchequer Phillip Hammond has upped the ante by saying that a no deal Brexit would be a betrayal. Lord Michael Heseltine was suspended from his party after he said he would vote for the europhile Lib-Dems in the EU elections.

On the other end of the party, the leading candidate to replace May, Boris Johnson, and former Brexit minister Dominic Raab, also a potential competitor, are open to leaving the EU without a deal. The ruling party faces a devastating outcome in the European Parliament elections, losing many votes to the Brexit party, which is set to win.

The ongoing political uncertainty and the fear of a eurosceptic such as Boris Johnson entering Downing Street weighs heavily on Sterling. In the longer term, Johnson may surprise, but this is not where we are now.

Outside Brexit-land, the US-Sino trade-related tensions have heightened as China remains defiant in the wake of America's ban on Huawei, the Chinese telecom giant. While the administration has granted a temporary license to the firm, many worry about a "tech cold war."

Moreover, the world's largest economies have not scheduled new high-level talks and pundits are already talking about a potential recession. Nevertheless, the Federal Reserve has not changed its stance and does not intend to cut interest rates. The US Dollar enjoys the safe-haven flows related to the tensions and the Fed's patient stance.

Overall, news from May's cabinet meeting and trade headlines are set to dominate a day that does not feature any top-tier economic releases.

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart is just below 30 at the time of writing, indicating oversold conditions. This situation implies a bounce. However, other indicators such as downside momentum and the falling Simple Moving Averages point to the downside.

If GBP/USD loses this week's lows around 1.2710, the next support line is 1.2670 that was a swing low in January. Further down, 1.2610 was a stubborn support line in December. It is followed by the flash-crash low of 1.2440 in early January.

Looking up, some resistance awaits at 1.2780 that held the currency pair down on Monday. On its way down, 1.2830 provided temporary support and now serves as resistance. It is followed by 1.2870 that was the low point in April.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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