GBP/USD: Politics steals the show from data, critical support at 1.28 exposed

GBP/USD has tumbled down as Brexit talks turn sour. Meanwhile, optimism about a US fiscal deal could make way to fresh pessimism, pushing the cable below 1.28, FXStreet’s analyst Yohay Elam reports.

Key quotes

“Ursula von der Leyen, President of the European Commission, announced that the bloc has sent a formal notice to the UK in response to the Internal Market Bill. That is the first move before taking Britain to court. The announcement follows the expiry of the EU's ultimatum to the UK over the legislation that knowingly violates the Brexit Withdrawal Agreement that PM Boris Johnson signed last year.” 

“GBP/USD could fall below 1.28 if talks in Washington fail to achieve a deal or if investors' concerns about a contested election. President Donald Trump refused to say he would accept the election results and also supported a white supremacist group in the debate with Joe Biden. The Democrat retains his lead in both national and state polls.” 

“Data is also high on the agenda ahead of Friday's all-important Non-Farm Payrolls report. The first hint beat expectations – ADP's labor market report showed an increase of 749,000 positions in September, better than estimated.”

“Pound/dollar is capped under a downtrend resistance line that has been accompanying it since mid-September. It is approaching critical support at 1.28 – which is a round number, provided support earlier this week, and where the 200 Simple Moving Average meets the price. On the way down, cable lost the 100 SMA.”

“Below 1.28, further support awaits at 1.2685 and 1.2665. Resistance is at 1.2920, a swing high from early in the week, followed by 1.2950, the daily high.”