GBP/USD Forecast: Three short-lived reasons to rise that may not preclude the next fall

Even a dead cat can bounce when it falls on the floor – and that is probably the best description for GBP/USD's price action. Cable is off the fresh five-month lows but has yet to conquer the previous short-term high of 1.2605. 

Why did GBP/USD rise? Here are three reasons accompanied by 

1) Politics: Corbyn nearing a second referendum but Johnson increasing his lead

Opposition leader Jeremy Corbyn has reportedly been moving toward supporting a second EU Referendum. This is not the first time that the media has been touting these reports, but perhaps growing pressure has finally moved the arguably euro-skeptic leader toward this view.

Tom Watson – Corbyn's deputy at Labour – has publicly called the party to adopt a new poll on Brexit and to make the case for staying the EU. He has also said that the party is "leaving him." The main opposition party has been beaten by the Europhile Liberal Democrats at the EU elections.

If Labour fully supports a "people's vote", it has a chance of mustering support in parliament for such a move – and GBP/USD has risen on its rising prospects.

On the other side of the political aisle, former foreign secretary Boris Johnson has increased his lead over his rivals at the Conservative Party. Johnson insists the UK will leave the EU by October 31st – deal or no deal. 

Tory MPs will vote in the third round later today. Hardliner Dominic Raab was eliminated on Wednesday and most of his support will likely go to Jonshon. The specter of a hard Brexit may weigh on the pound.

2) OK inflation but the BOE may drop its hawkish bias

Britain's Consumer Price Index for May stood at 2% – exactly the Bank of England's target. It did not fall below the mark as some had feared. The publication has sent GBP/USD higher. 

However, with prominent central banks either cutting interest rates or adding more stimulus, the BOE – which meets on Thursday –may ignore the figures and drop its intent to raise rates. 

See BOE Preview: Will Carney cause carnage to GBP/USD?

And earlier, the central bank on the other side of the pond may pressure the pound. The Federal Reserve is set to leave its interest rate unchanged but may open the door to cutting interest rates. However, bond markets are pricing at least two cuts this year – and the Fed may fall short of these expectations. 

If the Fed remains optimistic, the USD may strengthen.

See

• FOMC Preview: to be or not to be 'patient.'
• Fed Preview: Proto-Easing
• Fed Preview: Five factors that will rock USD in a critical decision

3) Technical – Exiting oversold conditions

The Relative Strength Index on the four-hour chart has been below 30 – indicating oversold conditions and a potential bounce. After hitting the lowest levels since January and nearly losing 1.2500, some investors covered their shorts and pushed the pound higher.

The RSI has exited oversold conditions and GBP/USD may now resume its falls.

Momentum continues pointing to the downside and the pair is below the 50, 100, and 200 Simple Moving Averages. 

Support awaits at 1.2558 which was the low point in May. It is followed by 1.2506 which is the fresh five-month low. 1.2475 provided support in December 2018 and 1.2445 – the 2019 low.

Resistance awaits at 1.2605 which capped cable earlier this week and provided support in May. 1.2640 and 1.2660 were support lines earlier in June, and 1.2710 capped a recovery attempt last week.