GBP/USD bears look for a break of at 1.2711/1.2662 on Brexit angst

Brexit remains the overriding risk for sterling traders which, for once, had been supportive on the headlines that the European Court of Justice, (ECJ), Advocate General's legal opinion argues that the UK can unilaterally revoke its withdrawal from the EU. 

Manuel Campos Sanchez-Bordona rejected the contention that Article 50 only allows the possibility of revocation following a unanimous decision of the European Council.
Instead, he said Article 50 allows the "unilateral revocation of the notification of the intention to withdraw from the EU until the Withdrawal Agreement is formally concluded".

While that, on the knee-jerk, seemed a plausible benefit for sterling, as it brings more flexibility to the negotiations and tones down the outlook of a hard Brexit of which the BoE recently proclaimed would be a disaster for both the economy and the pound. 

However, a combination of hawkish rhetoric from the Fed's Willams and a different take on the ECJ theory being negative for the UK has weighed on the pound considerably. UK politics is a mess, and the public had all but lost faith in the UK government. In such an outcome, there would be a revolving door of resignations from the Tories and public unrest in the UK - (Just look at what is happening in Paris at the moment). A general election would be the next risk for the pound and more negotiations between whoever gets into power and Brussels, most likely having to go into such meetings with their tails tucked in between their back legs begging for forgiveness and settling to less favourable terms that Britain had in the first place - "Take it or leave it". Brussels would likely push for a full commitment, and that would mean joining the euro, a likely subject for discussion amongst the conspiracy theorists out there. 

Meanwhile, Williams has gyrated his puffed-up chest of hawk feathers in contrast to his comrades at the FOMC who have come with a more dovish tone, particularly the governor of the Fed, Jerome Powell who recently sent the dollar into a tailspin when indicating, in so many words, that the Fed will soon pause. Williams sees further gradual hikes over the next year 'or so'...indicating the Fed could continue to raise rates in 2020 as well as next year - The markets had been projected three rate increases for next year - However, Powell, last week, said rates are "just below" neutral, perhaps indicating that concerns about a more aggressive path higher for rates may no longer be warranted.

A bottomless-pit for sterling awaits

However, besides the Fed and the nonfarm payrolls data this month, traders are going to more focused on Brexit. It’s now up to MPs to make the next move on Brexit. With a so-called ‘meaningful vote’ in parliament next week, they have to decide whether to back the deal the prime minister has negotiated with the EU. But it’s looking increasingly likely that they’ll say no to Theresa May’s plans, and that is a massive risk to the pound that opens the trap door to a bottomless-pit regarding cable - BoE Governor Carney said recently that the pound could lose 25% of value on a disorderly Brexit. 

GBP/USD levels

Analysts at Commerzbank noted that GBP/USD is starting to erode the bottom of its 4-month trading range:

"It will find initial resistance at the 55 day ma at 1.2971 and the resistance line at 1.3018, and while capped here it will remain offered. Support at 1.2711/1.2662, the August low and 3 month support line is being eroded. Below 1.2662 would trigger further weakness to the 61.8% Fibonacci retracement of the 2016-2018 advance and the June 2017 low at 1.2593/89. Above 1.3018 lies the November 14 high at 1.3072. Further resistance comes in at the 1.3175 November high below which we will retain a longer term bearish bias."