GBP/USD Forecast: Pound pressured as Boris Johnson's backstop plans backfire

GBP/USD remains on the back foot after the new PM's first interaction with the EU backfire.
UK politics and US GDP are in the limelight.
Friday's four-chart shows GBP/USD hinges on weak uptrend support.

Yohay Elam FXStreet

"Boris Johnson's approach is combative" – said Chief EU Negotiator Michel Barnier and sent Sterling lower. European Commission President Jean-Claude Juncker has also stressed to the new PM that the Withdrawal Agreement cannot be opened.

These words from top European officials were later joined by similar comments from Irish and French ones and came in response to Johnson's first speech as PM in parliament. The new tenant of No. 10 demanded to ditch the Irish backstop and also hinted Britain will not pay the 39 billion pounds it has committed to.

Johnson has maintained the hardline that characterized his campaign and has dominated his cabinet nominations – which included top posts for Brexiteers. The clash weighed on the pound. Nevertheless, some suspect that Johnson – known for his colorful style and rhetoric skills – is just preparing for new elections. And if Brits go to the polls, anything can happen – including a victory for the pro-Remain Liberal-Democrats.

GBP/USD's fall has also been fueled by a stronger USD – a reaction to the upbeat Durable Goods Orders. Core orders jumped by 1.9% and raised expectations for the first release of US GDP due shortly. A slowdown is expected in the US, but this is already priced in and upbeat consumption may overshadow a weak headline figure.

Overall, cable remains on the back foot.

GBP/USD Technical Analysis

GBP/USD has been trading within a narrowing triangle or wedge and is nearing uptrend support. Will it break or bounce? The currency pair trades below the 50, 100, and 200 Simple Moving Averages on the four-hour chart, momentum is to the downside, and the Relative Strength Index (RSI) is also leaning lower.

Overall, bears are in control.

Initial support below the trendline awaits at 1.2420 which was a swing low earlier this week. The two-year low of 1.2380 is a critical line. Below, we find 1.2330 and 1.2250.

Resistance awaits at 1.2440 which was a double-top, last seen in mid-July. Further up, 1.2480 was a swing low in mid-July, and 1.2520 capped GBP/USD in recent days.

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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