GBP/USD extends daily rally to fresh 2-week high at 1.3050

Despite the disappointing Service PMI data from the UK, the British pound outperformed its peers on Monday as investors stayed focused on Brexit headlines ahead of Tuesday's Cabinet meeting. With the greenback losing strength in the NA session, the pair extended its rally and touched its highest level since October 22 at 1.3050. As of writing, the pair was trading at 1.3046, adding 0.6% on a daily basis.

Over the weekend, the Sunday Times claimed that the UK and the EU have agreed on a customs union saying that the EU made a significant concession to allow the UK to avoid a hard border on the Isle of Ireland. Although the report pointed out that the solution was temporary, the pound sterling started the week on a strong note. Later in the day, Irish Prime Minister Leo Varadkar said that it would be ideal to reach a Brexit deal by the end of the year.

Nevertheless, Downing Street didn't confirm the report and called it "speculation," the GBP/USD pair preserved its momentum as the greenback struggled to find demand ahead of tomorrow's critical midterm elections. The US Dollar Index, which failed to capitalise on Friday's robust labour market data, fell to a daily low at 96.25 in the U.S. evening and was last seen down 0.2% on the day at 96.30. Today's data from the U.S. showed that the business activity continued to expand at a healthy pace but couldn't attract the investors.

• US: Services PMI (final) improves to 54.8 in October from 53.5 in September - Markit.
• US: ISM Non-Manufacturing PMI comes in at 60.3 in October vs 59.5 expected.

Previewing Tuesday's midterm elections, “Recent polling points towards a divided Congress, with the GOP predicted to maintain a slim majority in the Senate while the Democrats look likely to take the House. This will result in gridlock through 2020 and raises the risk that Democrats pursue impeachment and bog the administration down with investigations, which reduces the odds of any further stimulus,” argued TD Securities analysts.

Technical outlook by FXStreet Chief Analyst Valeria Bednarik

From a technical point of view, the Pound is relatively strong, as seems speculative interest is willing to believe a deal will be achieved. The 4 hours chart shows that the pair spent the day consolidating above a flat 200 EMA, while the 20 SMA keeps advancing below the larger one, now catching up with the price after last week's run. The Momentum indicator in the mentioned chart has spent the day easing within positive ground but the RSI advanced modestly, holding near overbought readings, indicating that bulls retain control despite being unwilling to push the pair higher.

Support levels: 1.3020 - 1.2980 - 1.2935.

Resistance levels: 1.3085 - 1.3130 - 1.3180.