GBP/USD Forecast: Without a Brexit breakthrough, only oversold conditions can save it

GBP/USD is trading at the lowest levels in two months.
USD strength and the stalled government-opposition talks weigh.
The four-hour chart shows oversold conditions.

Yohay Elam FXStreet

GBP/USD is trading closer to 1.2900, the lowest since mid-February. There are two major reasons for the downfall. The US Dollar is on the rise across the board as the Federal Reserve is not seen as cutting interest rates. The latest economic figure to come out of the US was upbeat: New Home Sales beat with 692K annualized.

More importantly for the pound, talks between Theresa May's Conservatives and Jeremy Corbyn's Labour are not going anywhere fast. Labour blames the Tories for refusing to compromise and the ruling party blames the opposition for dragging its feet. The future trade relations between the UK and the EU are in the limelight. Labour wants a permanent customs union with the continent and this opinion is not shared with the government.

In addition, various Conservative MPs are plotting to oust May. Some are proposing rule changes that will force another vote of confidence which is prohibited by the current party rules.

UK Public Sector Net Borrowing is projected to remain minimal, but the focus remains on Brexit. Without a breakthrough in talks, the pound may struggle to recover.

GBP/USD Technical Analysis

After crashing below the uptrend support line that accompanied it since March, it extended its falls to the lowest level since February. Momentum remains to the downside and the pair trades below the 50, 100, and 200 Simple Moving Averages on the four-hour chart.

On the other hand, the Relative Strength Index is around 24, below 30, thus representing oversold conditions. This situation implies a rebound or at least some stabilization.

Support awaits at 1.2895 which separated ranges in mid-February. Further down, 1.2830 was a support line in early February and 1.2775 was the low point that month.

Looking up, resistance awaits at 1.2960 which was the low point in March, followed by 1.2985 that was a swing low earlier in April. The recent recovery attempt hit 1.3020 which is the next level to watch. 1.3060 is next.

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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