GBP/USD straining for 1.31 as Brexit threatens more downside

The GBP/USD is trading just shy of 1.31 as markets round the corner into Tuesday's UK market session which sees a healthy dose of UK economic data as well as expectations of further Brexit headlines.

The Sterling is struggling to keep a bullish recovery on the rails from last week's turnaround at 1.3030, and GBP buyers will be hoping to keep the Cable upright with US markets due to return to the fray later today after a long weekend, but of more import will be ongoing Brexit headlines, and the recent flow of hopeful-leaning headlines are beginning to turn grim once again, as the EU and the UK continue to stare each other down as the clock slowly runs out of time before Brexit.

Monday saw headlines cautioning that both European Union leaders in Brussels and UK Prime Minister Theresa May are making a play for position, with both parties alleging that no further movement can be seen unless the opposite party makes the first move, and market  participants could be primed for a rapid flight into safety if regular Brexit updates begin taking a step towards the angsty side.

Tuesday will be seeing a steady stream of Brexit headlines, but the tone could turn decidedly bearish as the two sides continue to seem further apart than initial announcements of progress keep making it seem, and the economic calendar for the day remains a thin affair with only a speech from the Bank of England's (BoE) Haldane, and the focus will be on Wednesday's UK month-on-month GDP figures for August at 08:30 GMT, and the major figure is forecast to tick down slightly from 0.3% to 0.2%, and a missed reading here could be just what GBP bears are waiting for to begin another round of selling, while today's US session will have the US PPI figures at 12:30 GMT, forecast moving slightly from 2.3% to 2.4%, though the big US reading for the week will be Thursday's core inflation figures.

GBP/USD levels to watch

According to FXStreet's own Valeria Bednarik, the Irish border issue surrounding current Brexit tensions will remain the key driver looking forward in the near-term: "technically, the pair is still confined to familiar levels, with the upside limited by the 1.3170 area, which stands for the 50% retracement of the 2016/18 rally, but above the 61.8% retracement of the same bullish run at 1.2880. There are no clear signs on directional strength in the 4 hours chart, as the price holds ever since the day started above the 20 SMA and the 200 EMA, both now converging around 1.3040, while technical indicators retreated sharply from overbought readings, the Momentum maintaining its downward strength but above its mid-line and the RSI recovering within positive ground limiting chances of a steeper decline. Seems unlikely that the pair can make a relevant breakout without headlines on whether or not, the EU and the UK reach an agreement on the Irish border issue."

Support levels: 1.3040 1.3000 1.2970                                                

Resistance levels: 1.3100 1.3130 1.3175