GBP/USD Forecast: Sell opportunity? Brexit emergency may turn into collapse of talks

A court appointment for Britain? The EU is angered with a draft bill presented to the British parliament that violated the Brexit Withdrawal Agreement – and may press charges against the UK. Both sides agreed to hold an emergency meeting on Thursday in London. 

Prime Minister Boris Johnson seems to regret that he allowed for a customs border in the Irish Sea – separating Britain and Northern Ireland – and now wants to unilaterally backtrack on his proposal. His Irish counterpart Micheál Martin said Johnson's move erodes trust, which is essential between neighbors. 

The setback in what was already agreed upon comes as negotiations on future relations continue but remain deadlocked. Sterling tumbled after London published the bill, but bounced quickly as Brussels did not imminently abandon the negotiating table.

The bloc's officials are calling for the legal text to be withdrawn and seem to want to convey this message also face to face. However, it is unlikely that Johnson will instantly change his mind – and there is a good chance that talks collapse. In that case, the pound could fall back down.

Coronavirus cases are rising on both sides of the Channel, and the UK introduced new rules limiting gatherings to six people and slapping fines for those who violate it. Moreover, the government is investing funds in an ambitious plan of rapid COVID-19 tests, that may help Britain return to normal activities. 

Markets have recovered from the setback in AstraZeneca's Phase 3 coronavirus vaccine trial. The British pharma firm announced a pause to investigate why one patient fell ill – and if it is related to the inoculation. The broad experiment could be back on track as early as next week – and additional efforts are at play. 

President Donald Trump acknowledged he played down the severity of the virus early on. While he trails rival Joe Biden in the polls, Americans still give him good marks on the economy. A test of the US recovery is due out on Thursday – jobless claims, which are projected to extend their gradual downfall from the highs.

See US Initial Jobless Claims Preview: Slowly but surely the economy improves

Pound/dollar mostly hinges on Brexit developments, with other factors playing second-fiddle. 

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart is above 30 – outside oversold conditions and allowing for fresh falls. Momentum remains to the downside and GBP/USD is trading below the 50, 100, and 200 Simple Moving Averages. 

Support awaits at the daily low of 1.2970, followed by Wednesday's low of 1.2890. Next, 1.2845 and 1.2775 await sterling.

Resistance is at 1.2950, a cushion from late August, followed by 1.3115 and 1.3150, both stepping stones on the way up. The next level to watch is 1.3180, a swing low from last week.

See 2020 Elections: Biden widens gap against Trump, why that may trigger a market bounce