GBP/USD Forecast: Pound braces for battle on Brexit – in and outside parliament

• GBP/USD has been falling after the government announced suspending parliament.
• MPs return this week for a short session and battle on Brexit.
• Early September's daily chart is pointing to further losses. 
• Experts are bearish on GBP/USD on all time frames.

No parliament – no possibility of forcing the government to leave the EU with a deal nor bringing it down – must have been the thought at 10 Downing Street. The decision to suspend the House of Commons for five crucial weeks caused outrage and a fall of the pound. The opposition will try to find a path to halt a hard Brexit, and the government will fight back. 

This week in GBP/USD: Proroguing in play

It was supposed to be a summer week beginning with a bank holiday. Politics heated up already on Tuesday as opposition parties agreed on a path forward to try to block a hard Brexit – via legislation. Realizing that there was insufficient support for a Vote of No Confidence  (VONC), Labour leader put his ambitions to become prime minister and opted for the legislative path.

Boris Johnson's big bombshell came on Wednesday. The PM announced the proroguing of parliament – suspending deliberations in the House of Commons for five crucial weeks ahead of the October 31 Brexit deadline. MPs will only have the first two weeks of September before they are off for another recess until a Queen's Speech on October 14th. Johnson claimed that this is a standard procedure that is meant to secure a majority for his government's domestic agenda. He also insisted there is ample time to discuss Brexit when he returns from the EU Council Summit on October 17-18 with a deal. 

His words fooled no one.

It became apparent that the government would like to prevent parliament from blocking its path to a no-deal Brexit – "do or die" as Johnson vowed in his campaign to become the leader. The pound tumbled down and found it hard to recover

The uproar came from the opposition benches and members of his own Conservative party. Ruth Davidson, the popular leader of the Scottish Tories, quit the party and so did the party's whip in the House of Lords. Online petitions, street protests, and court cases were also deployed – but the real battle is in the few days that lawmakers will have.

The US-Sino trade war has calmed as both countries called for calm. Nevertheless, Washington is set to slap new tariffs on Beijing on Sunday, September 1. And while China may not retaliate immediately – a hint that helped soothe investors – the response is ready to go. Sorry,

Low-level talks have taken place this week, and high-level negotiations were planned for September – but may fail to materialize. The calm pushed US yields higher and helped the dollar recover. 

US data has been mixed with the revision of second-quarter GDP coming out at 2% as expected – yet with a divergence between upbeat consumption and weak investment. The same trends were seen in other data. The Conference Board's Consumer Confidence gauge beat expectations, while Durable Goods Orders were mixed.

Brexit: Battle Brexit on three fronts

1) Parliament returns on Tuesday, and the opposition will try to hold an emergency session under Article SO24 to seize the agenda that is traditionally managed by the government. Speaker John Bercow – who has also expressed outrage – will likely play along. Labour, the Lib-Dems, the Scottish National Party, and others will need to agree on specific legislation.

The government will try to block it – especially by filibustering it in the House of Lords. In addition, Johnson and his cabinet ministers will try to convince the public and skeptics that they are serious about reaching a new deal with the EU. Officials in the bloc have insisted that the UK must come up with alternatives that are "realistic" – in what seems like a preparation to dismiss any British proposal as unrealistic. 

2) UK-EU talks The willingness of the EU to listen is also intended for internal politics. According to estimates, the German economy – that already faces an imminent recession – will lose 100,000 jobs in case of a hard Brexit. Chancellor Angela Merkel needs to convince the public that she did everything possible to prevent it.

It is also critical to remember that even if Brussels agrees to abandon the Irish backstop altogether – highly unlikely – its chances of being approved by parliament are low. A group of hard-Brexiteers that call themselves "Spartans" are opposed to the Withdrawal Agreement as a whole. The EU knows this as well – lowering the chances of a compromise. 

3) Court challenges: A court in Edinburgh has rejected an immediate injunction that would keep parliament open, but will hold a regular session on Tuesday, September 3. A court in London will hear a higher-profile legal challenge on Thursday. It is led by long-term anti-Brexit activist Gina Miller and by former Conservative PM John Major. 

According to experts, the chances of these challenges to succeed is low. Johnson received legal advice before proroguing parliament, and previous governments have also used suspended parliament for various reasons – including Major. Nevertheless, legal challenges may embarrass the government. 

Other UK events: PMIs in focus

Economic data will have occasionally have its say while Brexit dominates. Markit's forward-looking Purchasing Managers' Indexes (PMIs) for August may reflect anxiety over Brexit. The Manufacturing and Construction PMI are already below 50 – contracting.

The PMI for the services sector – the UK's largest – has scored 51.4 points in July and is expected to hold onto the 50 lines. A drop below that level may weigh on the pound.

Here are the upcoming UK macro events, as they appear on the economic calendar:

US events: New tariffs, and a buildup to the NFP

The trade war remains central. Unless Trump makes a U-turn, the US is set to slap tariffs on around $110 billion of Chinese goods that were not hit by levies so far. The move is due on September 1 – over the weekend. A surprise retreat may boost the dollar. China may wait several days before responding, but it is highly unlikely that it will stay put. Its response may push the dollar lower – alongside bond yields.

The economic calendar is busy. After a long weekend, US traders will return and follow the ISM Manufacturing PMI – the first hint toward Friday's jobs report. A score just above 50 is on the cards. Thursday features two significant releases – ADP's employment report for the private sector and the ISM Non-Manufacturing PMI. The data feed into expectations for Friday's Non-Farm Payrolls and move markets on their own right.

US Non-Farm Payrolls are expected to rise by 155K in August, modestly below July's 164K increase. Wages are forecast to increase by 0.3% monthly – repeating the previous month's increase. The Federal Reserve will be closely watching the figures ahead of its critical decision later in September. 

Jerome Powell, Chair of the Federal Reserve, will have the last word of the week. He will be speaking in Zurich and may convey a message regarding the upcoming rate decision before the central bank begins its "quiet period."

Here is the list of US events from the FXStreet calendar:

GBP/USD Technical Analysis 

GBP/USD trades within a narrowing wedge, with uptrend resistance and downtrend support set to meet in the next few days. Technical analysis textbooks suggest that volatility is set to rise once the pair chooses a direction.

GBP/USD enjoyed several days of upside momentum on the daily chart – yet this is disappearing. It continues trading below the 50, 100, and 200-day Simple Moving Averages. All in all, there are higher chances of a downfall than a rise.

Support awaits at 1.2150, which has supported cable in late August. Further support awaits at 1.2065 – a swing low from mid-August. The 2019 low of 1.2015 is critical. Lower, 1.2000, 1.1985, and 1.1866 are next.

Resistance awaits at 1.2210 that capped GBP/USD in early August. The initial post-crash high of 1.2250 is the next line to watch. The late August peak of 1.2310 follows. Next, we find the pre-crash lines of 1.2380 and 1.2420.

GBP/USD Sentiment

EU-UK talks will likely run in circles, and court challenges will probably fail. That leaves parliament as the main battleground. Will the House of Commons successfully pass legislation to block a hard Brexit? Will a vote of no confidence succeed in replacing Johnson with another PM? It is currently tough to assess the chances, implying high volatility. If the opposition succeeds, sterling is set to soar. If the government wins, it may plunge. 

The FXStreet Poll is showing that experts are bearish on all time frames, but are more with targets downgraded for all time frames. It is essential to note that while short-term targets are tight, there is a substantial divergence in medium and long term forecasts, with a range of 2,000 in the three-month horizon.

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