GBP/USD Forecast: The deal is not done, but cable can further run

• GBP/USD has surged amid hopes for a Brexit breakthrough. 
• Further Brexit developments and US-Sino talks stand out in the upcoming week.
• Late September's daily chart is pointing to further gains.
• Experts are bearish on GBP/USD on all time frames. 

Prime minister Boris Johnson may be getting on board an Irish-specific solution to the backstop – and GBP/USD is flying higher. While a full Brexit deal may take more time, further gains are possible. The last full week of September also features top US figures and trade talks.

This week in Brexit: Contours of a deal

Great Britain may fully exit the EU's customs union while no border checks are erected in Ireland. That possibility used to be impossible as it would mean having separate rules for Northern Ireland and for the rest of the UK – something that was ruled out by the Democratic Unionist Party (DUP). The ruling Conservative Party used to rely on the DUP for a majority in parliament – but that majority has been lost in early September. Moreover, DUP leader Arlene Foster has warmed up the idea.

Reports from Brussels suggest the UK is gradually moving in that direction – but perhaps at a slow pace. Nevertheless, European Commission President Jean-Claude Juncker has expressed optimism and also added he has no "emotional attachment" to the backstop – if the EU's objectives are reached.

Juncker's words have sent the pound rally to the highest levels in two months as markets are beginning to price out a hard exit.

In the meantime, the UK Supreme Court has heard the case against suspending parliament. The ruling is due out only next week, but the government has already hinted that it may try to prorogue parliament once again. The news temporarily weighed on the pound.

Other events: Fed, BOE, and trade 

The Bank of England left its interest rate unchanged at 0.75% as expected. It expressed satisfaction with the upbeat labor market and concern about global growth. The BOE remains in a wait-and-see mode amid Brexit uncertainty. Governor Mark Carney and his colleagues continue assuming a smooth exit and refuse to say how they will act in case of a hard Brexit. The bank has maintained its hawkish bias – intending to hike rates once Brexit is resolved. 

See BOE Analysis: Staying away from the spotlight is pound-positive

UK inflation disappointed with a slowdown to 1.7% in August – below expectations and despite a rise in the pound. If it persists, the BOE will be under less pressure to raise rates. Retail sales missed expectations in August but saw upward revisions to July. 

In the US, the Federal Reserve cut interest rates by 25 basis points for a second consecutive time. On the other hand, the Fed's forecasts for the path of rates – the dot-plot – shows no more rate cuts in this year and the next. Nevertheless, Jerome Powell, Chair of the Federal Reserve, left the door open to more cuts and said the committee takes decisions on a meeting-by-meeting basis. The US dollar initially strengthened but then stabilized. 

Trade talks between the US and China continued ahead of high-level talks in October. An interim deal – which implies freezing new tariffs and barely any additional measures – remains on the cards. Two White House advisers have provided contradicting accounts of how talks are going. 

UK events: Brexit talks, court ruling

EU-UK negotiations are set to continue in Brussels, but a deal may take some time. It will take the British team time to finalize the details of its proposal. The more significant reason is that Johnson would probably want to hold his ground through the Conservative Party's annual conference. The event is held in the week beginning on September 30. He may want to convey a fighting message when the spotlight is on him and only then compromise. Both sides know this.

Nevertheless, some details may still emerge during the upcoming week. If the EU downplays British proposals, the pound may suffer, while if optimistic comments come out, sterling may shine. GBP/USD has shown its sensitivity to every Brexit-related headline.

The Supreme Court is expected to hand out its ruling on the case against suspending parliament early in the week. Most analysts expect a rejection of the case. However, if the court orders to reconvene parliament – in the middle of the Labour party's conference – it would cause some heightened political scrambling. A return of parliament may push the pound higher as MPs could continue pressing the government.

The economic calendar is light, with Public Sector Net Borrowing due on Tuesday the sole economic figure. The BOE's Michael Saunders will deliver a speech on Friday but is unlikely to move the pound.

Here are the upcoming UK macro events, as they appear on the economic calendar:

US events: Trade talks, GDP

Trade talks may accelerate as China will be on holiday in the following week. Any remarks made by both Washington and Beijing may impact markets. The Twitter accounts of President Donald Trump and Global Times' editor Hu Xijin tend to have the most significant influence in the short-term. Also, more concrete details about the talks have a more significant potential to move markets. 

The US calendar is packed with events. Markit's forward-looking Purchasing Managers' Indexes kick off the week, and manufacturing numbers are of interest as some fear a downturn in the sector. Additional housing data are scheduled for Tuesday after construction figures beat expectations in the past week. The Conference Board's Consumer Confidence measure will likely remain robust in September, and the main dish is on Thursday.

The final US Gross Domestic Product figure for the second quarter is expected to confirm the 2% annualized growth rates. Changes to personal consumption, which has carried the economy forward – and investment, which has dragged it down – are watched. 

Durable Goods Orders due out on Friday will provide an updated picture of investment in August. The Fed's preferred measure of inflation – Core Personal Consumption Expenditure – is also released on Friday. It tends to have a minimal effect as it is published after the parallel Consumer Price Index (CPI).

Here is the list of US events from the FXStreet calendar:

GBP/USD Technical Analysis 

GBP/USD has been trending higher in recent weeks and has managed to surpass the 100-day Simple Moving Average recently. The currency pair enjoys upside momentum, and the Relative Strength Index (RSI) remains below 70 – thus outside overbought conditions – and allowing for more gains.

1.2525 caped the pair in mid-September. IT is followed by 1.2580, which held it down around the same time and also in mid-July. Further up, 1.2650 served as support in June and now works as resistance. It is followed by 1.2735 and 1.2785, which both were resistance lines in June.

Looking down, 1.2440 worked as support in July and returns to its same role. It is followed by 1.2390 which separated ranges in mid-September. Next, we find 1.2285, which was a swing low in mid-September. It is followed by 1.2250.

GBP/USD Sentiment

Markets will hesitate to send GBP/USD much higher unless a deal is within reach, but the gradual advance may continue as the chances of a hard Brexit diminish – with or without the return of parliament. 

The FXStreet Poll is showing that experts are bearish on all time frames and see the pound gradually falling. Targets have not changed much in the past week – perhaps there are doubts about the recent rally. 

 

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