GBP/USD Forecast: Seems vulnerable ahead of Sunday’s deadline for Brexit trade talks

• Fading hopes for a post-Brexit deal prompted some fresh selling around GBP/USD on Thursday.
• Cross-driven weakness stemming from the post-ECB rally in EUR/GBP added to the selling bias.
• The prevalent USD bearish sentiment helped limit any further losses, at least for the time being.

The GBP/USD pair came under some fresh selling pressure on Thursday and extended the previous day's retracement slide from weekly tops. A key summit between the UK Prime Minister Boris Johnson and European Commission President Ursula von der Leyen ended with no apparent progress. Officials cited that both sides remain far apart on key issues like fisheries and level playing field. Negotiators now have time until the end of the week to hammer out a compromise deal. Meanwhile, British PM Johnson warned on Thursday there was a strong possibility that the UK and the EU would fail to strike a deal. The not so optimistic developments dampened prospects for a post-Brexit trade deal, which, in turn, was seen as a key factor that took its toll on the British pound.

Apart from this, some cross-driven weakness stemming from the post-ECB rally in the EUR/GBP and some technical selling below the 1.3300 round-figure mark further contributed to the intraday downfall. The pair dived to an intraday low level of 1.3245, though a broad-based US dollar weakness helped limit further losses. The greenback witnessed some selling following the release of worse than expected Initial Weekly Jobless Claims data, which added to market worries about the economic fallout from the second wave of coronavirus infections. In fact, the number of Americans filing for unemployment-related benefits jumped to 853K during the week ending December 5, up sharply from the previous week's upwardly revised reading of 716K. The pair managed to rebound around 50 pips from daily lows and gained some traction during the Asian session on Friday.

That said, a slight deterioration in the global risk sentiment might extend some support to the greenback's safe-haven status and keep a lid on any meaningful positive move for the major. In the absence of any major market-moving economic releases from the UK, developments surrounding Brexit saga will continue to play a dominant role in driving the sentiment surrounding the sterling. Traders on Friday will further take cues from a scheduled speech by Governor Andrew Bailey. Later during the early North American session, the US economic docket – featuring the releases of the Producer Price Index (PPI) and revised Michigan Consumer Sentiment Index – will be eyed for some impetus. The data, along with the US stimulus headlines, will influence the USD price dynamics and produce some meaningful trading opportunities on the last day of the week.

Short-term technical outlook

From a technical perspective, the emergence of some fresh selling and a subsequent slide back below the 1.3300-1.3290 horizontal support added credence to last week’s false breakout through over two-month-old ascending trend-channel. That said, bearish traders might still wait for some follow-through selling below weekly swing lows, around the 1.3225 region, before positioning for any further depreciating move. The pair could then break below the 1.3200 mark and accelerate the fall towards the 1.3170-65 confluence support. The mentioned region comprises of 50-day SMA and the lower boundary of the trend channel, which if broken decisively will confirm a near-term bearish breakdown and turn the pair vulnerable to prolong its ongoing corrective slide.

On the flip side, immediate resistance is now pegged near the 1.3340-50 horizontal zone, above which a bout of short-covering could lift the pair back towards the 1.3400 mark. Any further move up might continue to meet with some fresh supply near mid-1.3400s. That said, some follow-through buying has the potential to push the pair back towards the key 1.3500 psychological mark. The latter coincides with the trend-channel resistance and keep a lid on any further gains for the major. Only a sustained breakthrough will negate any near-term bearish bias and pave the way for the resumption of the recent strong upward trajectory witnessed over the past two-and-half months or so.