GBP/USD Forecast: Set for more losses as the Brexit blame game intensifies

"All politics is local" – goes the American saying – which applies to the UK. Prime minister Boris Johnson has offered the EU to replace the controversial Irish backstop with a commitment to prevent a hard Irish border. He also proposed unspecified "alternative arrangements" to come into play once the transition period ends.

The four-page letter to European Commission President Donald Tusk includes a detailed explanation of why Johnson objects the backstop – the UK wants to diverge from the EU on regulation and customs. However, if the UK has its own rules, there must be a border between the Republic of Ireland – an EU member – and the UK's Northern Ireland. 

While some hard-Brexiteers have criticized the PM's offer as the first step in climbing down from his original demands, the text of the letter seems to echo their demands and repeating his words while he was vying for the leadership of the Conservative Party.

Political commentators see this letter as intended for internal politics – showing that Johnson is fighting for Brexit and accusing the EU of intransigence. This notion has been strengthened by the Tory Chairman James Cleverly, that the EU needs to show a degree of flexibility. 

And the EU has shown no flexibility – sticking to the stance that the backstop is necessary and has been negotiated with the UK over a long period of time. Irish PM Leo Varadkar reiterated the message over a lengthy phone call with Johnson on Tuesday. The PM will travel to Berlin and Paris for face-to-face talks with the leaders there. He may use these visits to show that he tried negotiating and putting the blame on the EU for refusing to budge – ahead of potential elections.

Electioneering is not unique to the ruling party. Opposition leader Jeremy Corbyn has called for those opposing a hard Brexit to unite around him as a caretaker PM. While he said he would do "everything it takes" to stop a no-deal exit, he insisted that he should replace Johnson at 10 Downing Street. In his speech on Monday, Corbyn tackled a broad range of issues in what seemed like a campaign speech.

Elsewhere, tension is mounting ahead of the Federal Reserve's release of its meeting minutes on Wednesday. The publication precedes the all-important speech by Chair Jerome Powell on Friday. Markets are eager to know if the Fed intends to cut rates in September as a result of intensifying trade wars and fears of a recession – or stick to its wait-and-see approach.

President Donald Trump has called on the Fed to slash rates by 100bp – four times the standard. However, Eric Rosengren, President of the Boston branch of the Federal Reserve, sees no need to cut rates.

Speculation about Brexit and the Fed is set to dominate today.

GBP/USD Technical Analysis

GBP/USD has fallen back to the downtrend channel that it fought so hard to break above. It failed to settle above the 20 Simple Moving Average and is now dropping below the 50 SMA. Upside momentum is waning. 

All in all, the picture is worsening for the pair.

Some support awaits at the daily low of 1.2080. It is followed by 1.2040, which provided support last week. 1.2015 is the 2019 low and critical support. Further down, 1.2000 and 1.1985 await cable.

Noteworthy resistance awaits at 1.2175, which has capped it last week. It is followed by 1.2210 that held it down in early August, and finally by 1.2250 – the post-crash high.