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GBP/USD Forecast: 1.2860 Must Break for Outlook to Turn Constructive

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The GBP/USD exchange rate has powered higher by 0.60% at the start of the new week and is seen at 1.2836, however the gains are not yet quite convincing enough to convince analyst and technical forecaster Richard Perry of Hantec Markets that Sterling's outlook has shifted from negative.

GBP/USD has been trending lower for nearly four weeks now. This trend has formed lower highs and lower lows, and turned a bullish medium term outlook into a neutral one.

As there has been an early tick higher this morning, we see that this downtrend is being tested and is close to being broken.

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This is coming as the selling pressure has just paused in recent sessions and GBP/USD has formed a number of consecutive neutral to slightly positive candles.

However, consolidation breaking a downtrend is not bullish, it is just questioning the pace of the corrective move.

There is a pivot around 1.2860 which needs to be broken for an improving outlook to take hold.

Momentum indicators are still in their corrective configuration and suggest that near term rallies are still going to struggle.

We still prefer to position for pressure on 1.2650/1.2670 support, where a close below would turn the market decisively corrective. It would need a close above 1.3000 to turn Cable bullish now.

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A tech rally into the close on Friday helped a recovery take hold on Wall Street and continues to have a positive bias into the new trading week.

US Democrats are still trying to work on a fiscal support package that could potentially be voted through this week. If so, it could signal a sustainable shift in market sentiment which has been trading very much with the risks in mind recently.

Rising COVID second wave risks at a time in which US Congress has failed to deliver on a fiscal support package in the US.

With the Presidential election just five weeks away now, political risk is also a factor as Trump is already threatening to take the result to the Supreme Court if he loses.

The negative risks would be lessened if a fiscal package can be agreed upon. This morning we see equities continuing on the wave of Friday’s rally, whilst the dollar strength is also rolling over. How long can this improvement in sentiment last may depend upon progress on fiscal support in Congress.