GBP/USD: turnaround week for the pound, headed to 1.3250?

Currently, GBP/USD is trading at 1.3131, up 0.49% on the day, having posted a daily high at 1.3186 and low at 1.3075.

GBP/USD has been suffocated by the constant barrage of dire political news from the UK and around the Brexit deadlock. However, it seems that weekend news took timeout which gave the sound a breather from the supply.

UK: Poor speech from PM May - BBH

Cable rose to test 1.3150 (Asia high) during the European am and continued higher to 1.3184. The initial chaos in Westminster looks to have been averted. The Sunday Times notes that the PM will wait until after the critical Brexit-focused European Council meeting on 19-20 Oct before making any changes to her Cabinet.  "This might help to ease some of the downward pressure on GBP as fears of imminent chaos in Westminster have been thwarted," suggested analysts at ING Bank.

"In terms of personnel changes within the Cabinet were the Foreign Secretary Boris Johnson to leave or be denoted, markets may see this as drawing a line under the current internal split within government on key Brexit issues. This could lead to a symbolic relief rally in GBP – as it could lead one to factor in more progressive Brexit talks. On the flip side, we think rumours of Chancellor Hammond leaving may be unhelpful for GBP in the near-term; his vision of a Brexit that prioritises the safeguarding of the UK economy – while remaining fiscally prudent – has been a supportive factor for the currency (as it allows markets to price in a lower political and fiscal premium)," the analysts at ING explained.

GBP/USD levels

While the pound was looking to close below 1.3049 mid-May high, a technical correction is underway, targetting 1.3250/00. In the flip side, bears will be targetting the 1.2915 2016-2017 uptrends and the breakdown point to the 1.2830 38.2% retracement ahead of 1.2575 50% retracement should the bearish trend be reestablished.  

Valeria Bednarik, chief analyst at FXStreet explained, "the short term picture is near positive, as the strong advance has pushed the price above its 20 SMA that anyway maintains a bearish slope, and a few pips above the mentioned Fibonacci level at 1.3170. Technical indicators in the mentioned chart have extended their advances, now entering positive territory  for the first time in the month, although with not enough follow-through to confirm further gains ahead. The immediate resistance comes at 1.3210, the 50% retracement of the mentioned slide, and the level to surpass to confirm another leg higher during the upcoming sessions."