GBP/USD Forecast: Political development may weigh over Pound

Cable made multiple intraday attempts during Friday’s NY session to cut through offers around 1.45 levels, but failed and closed moderately lower around 1.4473 levels. Dollar sell-off post dovish FOMC event last week saw GBP/USD recover from 1.41 levels to 1.45 levels. Moreover, dovish FOMC overshadowed renewed Brexit fears.

Sterling may feel the heat of Iain Duncan Smith’s resignation

Iain Duncan Smith (Secretary of State for Work and Pensions) resigned over the weekend after Chancellor George Osborne announced proposed cuts to disability benefits during last week’s budget. Smith accused Osborne of putting wealthy Tory voters ahead of Britain's working poor.

A succession of MPs came out in support of Iain Duncan Smith and markets fear that would put an end to Tory consensus on austerity. Furthermore, markets also believe Smith’s resignation has got more to do with Brexit referendum and the former Secretary of State for Work and Pensions is now likely to throw his weight behind leave campaign.

Consequently, the currency pair gapped lower in Australia/New Zealand open and has been hit by fresh offers in London open.

Technicals – Strong support around 1.4383

Sterling’s failure to take out 1.45 hurdle despite symmetrical triangle breakout on the daily has left the doors open for a drop to 1.4383 (symmetrical triangle support).
Hourly RSI below 50.00 also means a higher possibility of a drop to 1.4383, which if breached would expose 1.4368 (38.2% of 1.5230-1.3835).
However, bears need to watch out for a rebound from 1.4383 followed by a break above 1.4424 (61.8% Fibo of 1.3835-1.4436-1.4053) would shift risk in favor of a rise to 1.45 levels.
Above 1.45, the spot would still need to take out 1.4512 (76.4% Fibo expansion) - 1.4533 (50% of 1.5230-1.3835) to convince bulls about a possible rally to 1.4668 levels.

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