GBP/USD Forecast: UK-EU blame game risks uptrend channel

"The EU must appreciate that we are leaving on October 31st, deal or no deal." These words by Michael Gove – the minister responsible for Brexit preparations – reflect the intensifying tensions between the UK and the EU and weigh on GBP/USD. PM Boris Johnson's government has reiterated its rejection of the thorny Irish backstop while the bloc says it cannot be dropped. 

Moreover, fears of a hard Brexit are growing as Dominic Cummings – Johnson's de-facto chief of staff and the mastermind of the Vote Leave campaign – is reportedly pushing to bypass parliament in order to ram through a no-deal exit. 

Parliament returns from the summer break on September 3rd and the clock is ticking toward the Brexit deadline – October 31st.

US-Sino trade tensions remain prevalent as well. China has fixed its yuan at a lower level once again – with USD/CNY just below 7.00 – the politically sensitive line. Volatility remains high in stock markets which have recovered on Tuesday after plunging on Monday. The US dollar – which has lost ground on expectations for the Federal Reserve to cut rates – has stabilized. The Fed may not rush to slash rates and remains dependent on the data. 

James Bullard, President of the Saint Louis branch of the Federal Reserve, has said that the bank should refrain from responding to every tit-for-tat move in the trade war. Bullard is usually a proponent of cutting rates and his hesitations have boosted the greenback.

A light economic calendar implies further Brexit and trade developments will likely move GBP/USD.

GBP/USD Technical Analysis

Cable has been trading within an uptrend channel since hitting a new 2019 low of 1.2075 last week. At the time of writing, GBP/USD is leaning lower and risks falling below support. The pair is capped by the 50 Simple Moving Average but enjoys some upside momentum. The broad picture is positive but may flip if it falls off the channel.

Support awaits at 1.2130 which provided support earlier in the week and currently coincides with the uptrend support line. The 2019 trough of 1.2075 is critical. Next, we find 1.1985 and 1.1866.

Some resistance awaits at 1.2210 which is the weekly high. The post-crash recovery of 1.2250 is the next line to watch. Further up, 1.2380 and 1.2420 await GBP/USD.