GBP/USD Forecast: Time for a breather after 200 pips? Overbought conditions ahead of the Fed

• GBP/USD has reached two-week highs amid USD weakness, some Brexit optimism
• The focus moves from the UK to the US with top-tier data and the Fed.
• The four-hour chart shows overbought conditions, implying a fall.

GBP/USD is extending its gains, trading above 1.3050, at levels last seen on April 17th. There are several reasons for the advance.

In the UK, there are hopes that the cross-party talks will make progress. Labour shadow business secretary Rebecca Long-Bailey said that talks were positive so far. Labour decided it will prioritize a deal with a government and wants to see PM Theresa May make more concessions on a customs union. The next preference is for an election, and the last one, as decided by the party's internal committee, is a second referendum.

Markit's UK Manufacturing PMI dropped to 53.1 points in April, but this figure still represents growth and came out within expectations. The high figure in March was driven by stockpiling related to Brexit, and some feared a more substantial fall. 

After the data is behind us, the focus shifts back to Brexit. PM May will face lawmakers in two separate events: Prime Minister's Questions (PMQs) and she will also be grilled in a committee hearing that will discuss Brexit. Any novelties on negotiations with Labour or new plans will be eyed. Her colleagues at the Conservative Party are reportedly waiting to oust her at a later date, probably after US President Donald Trump's state visit next month.

Cable is also higher thanks to the US Dollar's weakness. The greenback dropped on the disappointing inflation read on Tuesday. Core PCE, the Fed's preferred measure, slowed down to 1.6%. The news comes ahead of this week's top event: the Federal Reserve decision.

The Fed is expected to leave interest rates unchanged and some project that the world's most powerful central bank will open the door to rate cuts later this year.  Trump wants the Fed Chair Jerome Powell and his colleagues to slash rates by one percent, but his wishes are unlikely to become reality anytime soon. 

See:

• Federal Reserve Preview: Squaring the inflation circle
• Fed Preview: The good, the bad, and the ugly factors that determine the dollar's reaction

Two key figures are scheduled ahead of the Fed. They will serve as hints towards Friday's jobs report more than today's decision, but are still of high interest:

See US Manufacturing PMI, ADP Employment: A coin with two heads

GBP/USD Technical Analysis

The Relative Strength Index on the four-hour chart shows overbought conditions, as the indicator surpassed the 70 level. After crossing above the 50 and 100 Simple Moving Averages, it now faces the 200 SMA at around 1.3075 and this barrier may prove harder to break. However, Momentum remains to the upside.

The next level to watch is 1.3130 which capped the pair in mid-April. 1.3200 is a round number and also held the pair down early in the month. The next hurdle is 1.3270 that capped cable around the end of March. 1.3315 is next.

Initial support awaits at 1.3020 that was a swing high last week. 1.2960 was he bottom in March and is a clear separator of ranges. The two-month low of 1.2870 is the next line to watch.