GBP/USD sinks to critical support, technicals warn of further downside to 1.2802

• GBP/USD has started to stabilise following a sell-off from the 1.30 handle as Brexit worrying Brexit headlines take their grip again.  
• GBP/USD dropped from a high of 1.3053 to a low of 1.2924 and is currently stablised at 1.2951. 

GBP/USD is in the limelight once again this week with Brexit headlines streaming through ahead of the highly anticipated BoE. The pound got off to a poor start this week following the UK PMI surveys highlighting a renewed loss of momentum due to Brexituncertainty. The CIPS services PMI dropped to 50.1 in January, undercutting expectations, reminding markets that 50 denotes the threshold of economic expansion.

The British construction also slowed to a 10-month low in January, also mainly down to holds up in the projects due to Brexit uncertainties. IHS Markit/CIPS's UK Construction PMI for January fell in at 50.6, lower than the December's figure of 52.8 and was a disappointment with respect to the consensus of 52.6. 

On the Brexit front, despite the PM May's N.Irish speech today where she protected her commitment to the no hard border, saying it was unshakeable, yet again, it was a speech light on specifics. The question of how the UK government intends to avoid a hard Irish border in its Brexit deal still remains unanswered and the PM is likely to face an EU that is resistant to any reopening of the Irish Border Backstop. 

BoE outlook

• Bank of England Preview: All quiet on the rate hike front as MPC lacks Brexit clarity

Then with respect to the, BoE, it is highly unlikely to alter policy on Thursday and instead, the updating of forecasts within the Inflation Report and business intentions from the BoE Agents’ Report will likely be smothered in Brexit risks, weighing on the pound. 

"The Agents’ Report has great influence within the MPC. Any reflections of the deterioration in PMI’s in the Agents’ Report it is likely to impact the tone of MPC,"

analysts at Westpac explained. 

Meanwhile, we have a slight risk this evening.  Following yesterday's, "informal meeting" that Trump had with Fed Chairman Powell where both discussed "recent economic developments and the outlook for growth, employment and inflation, tonight, President Donald Trump’s State of the Union address will likely have markets tuned in looking for direction in the greenback. Investors will be watching for hints over Sino/U.S.-China trade relations progress, along with the partial government shutdown with respect to further infrastructure spending and border wall funding.

GBP/USD levels

Analysts at Commerzbank explained that GBP/USD broke below the 200-day ma and the daily Elliott wave count has seen the price plummet to the 1.2940 support level. Daily RSI has broken lower and MACD has turned negative - Indeed, momentum is bearish. At this juncture, analysts at Commerzbank note that bears can target 1.2802 the 55-day ma and potentially 1.2669/62, the August low. "Intraday Elliott wave counts remain positive and for now we will stand aside," the analysts at Commerzbank argued.