GBP/USD forecast: Remains vulnerable near multi-month lows as rejection of May's deal looms

Brexit-related news/developments remained in the spotlight on Friday and kept exerting bearish pressure on the British Pound. The fact that the UK cross-party talks - aimed at breaking the Brexit stalemate, broke down without an agreement amid differences over an option of a permanent customs union and a second referendum turned out to be one of the key factors denting the already weaker sentiment around the Sterling. 

Meanwhile, the opposition Labour party leader, Jeremy Corbyn confirmed that his party will still oppose the UK PM Theresa May's Withdrawal Agreement Bill when it is brought back before the parliament for yet another vote in early June. Markets are convinced that the deal stands no chance to get parliament's approval for the fourth time, raising chances of May's early exit and her replacement with a pro-Brexit PMI. This eventually raises the risk of a no-deal Brexit and continued fueling the recent GBP weakness. 

The GBP/USD pair tumbled to the 1.2700 neighbourhood, the lowest level since mid-January and was further pressurized by a follow-through US Dollar buying interest, which got an additional boost following the upbeat release of prelim UoM consumer sentiment index for May. However, slightly oversold conditions helped limit any further losses at the start of a new trading week and the pair hold steady below mid-1.2700 during the Asian session. In absence of any major market moving UK economic releases, the incoming UK political/Brexit headlines might continue to act as an exclusive driver of the broader market sentiment surrounding the British Pound.

Looking at the technical picture, the pair now seems to have found acceptance below 61.8% Fibonacci retracement level of the 1.2396-1.3381 up-move and hence, remains vulnerable to continue with its near-term bearish trajectory. However, given the recent slump of over 450-pips since the beginning of this month, near-term oversold conditions warrant some near-term conditions and hence, bearish traders are likely to take some breather near the 1.2700 round figure mark. Any subsequent slide below the mentioned handle now seems to find decent support near mid-Jan. swing lows, around the 1.2670-65 region, rather prompt some near-term short-covering move.

On the flip side, any attempted recovery move might confront some fresh supply near the 1.2770-75 region (61.8% Fibo. level) and seems more likely to remain capped at a short-term descending trend-line support break-point around the 1.2800 handle.