GBP/USD Forecast: Risking losing the uptrend channel as Brexit reality bites

The GBP/USD is having a hard time holding onto the round 1.3200 level on Friday. The primary driver is the Salzburg Summit. The markets were quite sanguine on Thursday, but the mood has changed now. 

The EU's Donald Tusk and Jena-Claude Juncker rejected the British Government Chequers proposal while UK PM Theresa May insists it is the only solution. The most thorny issue in the Brexit talks remains the Irish border. The outright rejection is a blow to the PM that faces a tough time at the Conservative Party Conference that begins on September 30th. A special EU Summit will likely be called for November 17-18, in addition to a planned one in mid-October. 

More: The dark side of Barnier’s mood

Sterling also enjoyed a beat on UK Retail Sales, which rose in August against expectations for a drop. Today's UK Public Sector Net Borrowing missed expectations with 5.9 billion pounds. 

The GBP/USD rallied on Thursday also on the weakness of the US Dollar. The greenback suffered from the sanguine atmosphere in stock markets. While the US imposed tariffs on China early in the week, the 10% tariff, China's moderate response, and other reasons soothed investors' worries. The greenback managed to find its feet today.

Without any significant economic indicators due later in the day, the focus remains on Brexit. Rumors of a special statement by PM May circulated earlier but were quickly denied by No. 10. 

GBP/USD Technical Analysis

The GBP/USD is trading within a relatively steep upwards channel and is now dropping towards the lower end. The pair exited overbought conditions on the Relative Strength Index (four-hour chart), and this may help it stabilize. The 50 and 200 Simple Moving Averages are below the price, providing further support. 

1.3225 offered temporary support on Thursday and almost coincide with the swing high of 1.3215 seen earlier this week. The next level to watch is 1.3300, which is not only a round level but also the peak on Thursday. Further above, 1.3375 held the pair down back in early July. 

1.3175 capped the pair earlier this week and served as a support line. It is followed by 1.3100, a round level that was a swing low last week. 1.3045 capped the pair late in August.