The GBP/USD pair built on overnight goodish rebound from sub-1.3100 level, weekly bearish gap, and rallied beyond the 1.3200 handle on Tuesday. The initial leg of up-move was supported by some renewed Brexit optimism after German European Union Minister Michael Roth's comments indicated possibilities of a Brexit deal. The British Pound got an additional boost from strong wage growth data, showing that average weekly earnings including bonus rose at their fastest pace in almost 10-years. However, the post-UK data positive momentum fizzled out near the 1.3235 region after the European Council President Donald Tusk later said that a no-deal is more likely than ever before.
The pair extended overnight retracement slide and traded with a mild negative bias through the Asian session on Wednesday, this time weighed down by a modest pickup in the US Dollar demand. Brexit headlines might continue to act as a key factor influencing sentiment surrounding the British Pound as we head into the key EU summit to try to break the deadlock over a policed border with Ireland. Also in focus will be the release of the latest UK consumer inflation figures, with the headline CPI anticipated to tick upwards to 2.8% y/y rate in September.
Later during the early North-American session, the US housing market data - building permits and housing starts, seems unlikely to provide any meaningful impetus ahead of the latest FOMC meeting minutes. Today's influential macroeconomic events, especially on the Brexit front, might now play an important role in determining the pair's next leg of directional move.
Looking at the technical picture, the pair has been climbing along side an ascending trend-line and has also found acceptance above 100-day SMA, supporting prospects for an extension of the near-term positive move. However, any meaningful up-move back above the 1.3200 handle is likely to confront fresh supply around mid-1.3200s, representing another descending trend-line resistance.
The combination of two converging trend-lines now seems to have formed a symmetrical triangular formation on the daily chart. Given the pair's steep decline since April, the triangle could be seen as a continuation pattern, though will be confirmed only once the lower ascending trend-line support is broken decisively. Alternatively, a convincing break through the triangle resistance will invalidate the formation and set the stage for a continuation of the pair's near-term positive momentum.
Meanwhile, on the downside, 100-day SMA, currently near the 1.3100 handle, seems to protect the immediate downside, below which the downfall could get extended towards testing the ascending trend-line support near the key 1.30 psychological mark.
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