GBP/USD Forecast: Recovery at risk as the Boris plan has border issues

The grace period is over and the pound may lose ground – after the EU says it is "unconvinced" by the new British Brexit plan. Prime Minister Boris Johnson was given one week from today to come up with new ideas. The PM also failed to schedule meetings with German and French leaders.

European Council President Donald Tusk said he is "unconvinced" by the proposal, while his peer Jean-Claude Juncker, President of the European Commission, called to release the legal text that accompanied the program.

The Irish taoiseach (prime minister) Leo Varadkar, went one step further and hinted that the document that is absent from the public eye does include reestablishing physical barriers in Ireland. If Varadkar's assertion is true, it would contradict Prime Minister Boris Johnson's statement in parliament that no new infrastructure would be needed. The issue is critical as all sides have pledged to maintain open borders on the Emerald Isle – a feat that critical for maintaining peace.

Johnson enjoys support from the hardliners in his party and from the Democratic Unionist Party (DUP), which previously opposed elements of the proposal. According to the British press, some 30 opposition Labour MPs may also back the plan, giving it an ample majority. 

However, support may evaporate if he reaches a compromise with the EU. Johnson has already opened the door to changes by saying that the plan is a "broad landing zone" and not a final offer. And that may hurt the pound. 

US Non-Farm Payrolls in focus

Brexit developments will compete – at least temporarily – with the all-important US Non-Farm Payrolls report. A series of three disappointing data points have lowered expectations for the US jobs report as a global slowdown takes hold. The latest was the Purchasing Managers' Index (PMI) for the services sector which dropped to 52.6, the lowest in three years.

See

• US Non-Farm Payrolls Preview: Gathered clouds
• Non-Farm Payrolls Preview: Meager job growth likely – Five EUR/USD scenarios

An unimpressive increase in positions may increase speculation of a rate cut and weigh on the US Dollar. Odds for the Federal Reserve to cut rates have risen from 40% early in the week to 87% at the time of writing.

Jerome Powell, Chair of the Federal Reserve, will speak late in the day, but he may refrain from touching on monetary policy. Vice-Chair Richard Clarida has said that the Fed will "act as appropriate" – opening the door to cuts.

GBP/USD Technical Analysis

GBP/USD is battling the 50 Simple Moving Average (SMA) on the four-hour chart, trades above the 100 SMA, but below 200 SMA. Momentum is leaning to the upside but only just. All in all, the picture is mixed.

Resistance awaits at 1.2390 which separated ranges in mid-September and also later that month. It is followed by 1.2415, which was a high point on Thursday and also provided support in late September. Further up, 1.25 and 1.2525 await GBP/USD. 

Cable has support at 1.2325, which is the daily low. It is followed by 1.2275 that cushioned GBP/USD in late September, and then by 1.2230 and 1.2205.