Near-term bias in GBP/USD remains more bearish
The pound continues to look for a break to the upside but it's just not coming yet. A leadership contest against Theresa May is starting to dissipate and that will only help to build a more bullish sentiment for the pound in the near-term but technicals show that traders are still treading with caution more than anything else.
For cable, price is still failing to find a break above the 100-hour MA (red line) in order to break the near-term bearish bias in the pair. That's the first key hurdle before the 50.0 retracement level @ 1.2877 will come into play. That has been a level that has helped to limit gains since Friday last week.
So, what's next for the pound?
With a leadership contest fading away, it puts the focus on this Sunday's summit in Brussels. European leaders are expected to give the agreement the green light and that will only help to boost Brexit sentiment further as another key impediment gets removed.
However, the real deal breaker will be the meaningful vote in the UK parliament. And that will come some time in December after this weekend's summit. Right now, chances are still slim that May will be able to gather enough votes to support her Brexit deal.
But for pound traders, it's mainly one step at a time. As long as a leadership contest continues to stay sidelined, I would expect the pound to quietly make some headway back towards 1.3000 against the dollar in the near-term.
It'll all depend on headlines and the optimism/pessimism surrounding the meaningful vote in parliament but a leadership challenge can be seen as a proxy to that, so as long as that doesn't play out, it means that May still has a fighting chance - albeit a slim one - to win over parliament members ahead of the vote in December.
And that's what the pound will be trading on over the next few weeks.
