GBP/USD Forecast: Seems vulnerable ahead of UK's Brexit negotiating mandate

• Fears of a no-deal Brexit prompted some aggressive selling around GBP/USD on Wednesday.
• A slump in the US bond yields undermined the USD demand and helped gain some traction.

The GBP/USD pair came under some heavy selling pressure on Wednesday and reversed the previous day's goodish intraday positive move to one-week tops – levels just above the key 1.30 psychological mark. The downfall lacked any obvious catalyst and was sponsored by fears of a no-deal Brexit, further fueled by the UK’s diverging stance over the future trade relationship with the European Union (EU). The EU's mandate for the post-Brexit talks published on Tuesday emphasized on the need for a 'level playing field' and turned down prospects for the UK Prime Minister Boris Johnson's Canada-style trade deal.

Against the backdrop of uncertainty about the UK-EU future trade relationship, the pair tumbled over 100 pips and was further pressurized by a late pickup in the US dollar demand. As investors assessed the impact on the global economy from the coronavirus outbreak outside China, a modest intraday bounce in the US Treasury bond yields extended some support to the greenback during the second half of Wednesday's trading action. However, some renewed weakness in the US equity markets led to another leg down in the US bond yields and kept a lid on the USD uptick, albeit did little to provide any respite to the major.

The US bond yields continued losing ground through the Asian session on Thursday, which kept the USD bulls on the defensive and helped the pair to regain some positive traction. In absence of any major market-moving economic releases from the UK, the release of the UK's mandate for Brexit negotiations will act as a key driver of the sentiment surrounding the British pound. Later during the early North-American session, important US macro data – revised Q4 GDP print and Durable Goods Orders – might influence the USD price dynamics and further contribute towards producing some meaningful trading opportunities.

Short-term technical outlook

From a technical perspective, the pair's inability to capitalize on the attempted positive moves and repeated rejection from 50-day SMA suggests that the near-term bearish pressure might still be far from being over. Hence, some follow-through weakness, towards retesting YTD lows around mid-1.2800s, now looks a distinct possibility. Some follow-through selling might now turn the pair vulnerable to break below the 1.2800 mark and aim towards testing the 1.2780-70 horizontal support zone.

On the flip side, 100-day SMA, around the 1.2970 region, now seems to act as immediate resistance and is closely followed by the 1.30 supply zone and 50-day SMA stiff barrier near the 1.3035 area. Only a sustained strength above the mentioned hurdles might negate the near-term bearish outlook and prompt some short-covering, which has the potential to accelerate the move back towards the 1.3100 round-figure mark. The momentum could further get extended and the pair seems more likely to aim towards testing its next major resistance near the 1.3165-70 region.