GBP/USD Forecast: Selling opportunity? EU openness seems part of the blame game

• GBP/USD has surged after EU leaders agreed to talk about the Irish backstop.
• Nevertheless, an agreement is unlikely, and the pound may drop.
• Thursday's four-hour chart is pointing to overbought conditions.

German Chancellor Angela Merkel has said that a backstop solution can be found by October 31st – Brexit Day. Opening the door to a solution on the thorniest issue in the Brexit accord has sent sterling surging. GBP/USD is trading above 1.2200 – the highest in a month.

Today's comments from Berling followed the 30-day challenge that UK prime minister Boris Johnson took on himself after meeting the chancellor on Wednesday. French President Emmanuel Macron – whom Johnson is visiting today – has also agreed to talk.

However, the EU has previously rejected "alternative arrangements" or any technological workaround that the UK has offered. 

Britain would like to set its own customs rules after it leaves the EU and that requires setting borders between the UK and the EU. The only land border passes in the island of Ireland – and both sides have pledged to keep an open border. The free movement within the Emerald Isle is part of the Good Friday Agreement – that keeps the peace after decades of fighting. 

The circle cannot be squared. It is either staying in the customs union with open borders or being 100% independent with 

Johnson has repeated his position that the UK will not erect border posts in Northern Ireland – seems to put the blame for future Irish border posts on the EU.

Yet also the EU can play the blame game. By opening the door to new negotiations, both Merkel and Macron are showing flexibility. Johnson may project himself as a victor at home – getting concessions out of the strongest European countries. 

The ever-optimistic UK PM may offer solutions – and Chief EU Negotiator Michel Barnier will likely reject them. It has happened in the past and will likely happen in the near future.

Both sides are ramping up preparations for a no-deal Brexit – and blaming the other side is part of these preparations.

Therefore, the jump in GBP/USD seems unjustified and may present itself as a selling opportunity.

GBP/USD Technical Analysis

The four-hour chart is showing that GBP/USD has made a break above the uptrend channel that accompanied it since last week – a bullish sign. Moreover, momentum turned positive. On the other hand, the Relative Strength Index (RSI) is flirting with the 70 level – indicating overbought conditions. 

Even if the UK and the EU are genuinely nearing a deal – a technical pullback may be on the cards according to the RSI.

Initial resistance awaits at 1.2280 which is where the 200 Simple Moving Average meets the price. The next hurdle is at 1.2380, which provided support in mid-July. It is followed by 1.2420, 1.24880, and 1.2520. 

1.2250 was the initial high in August and remains a battle line. Support awaits at .12210, which held GBP/USD back several days later, and teh then 1.2180 that capped it in recent days. 1.2110 and 1.2060 are next.