GBP/USD: Under 1.2600, snaps six-day winning streak as Brexit deadlock looms

• GBP/USD stays depressed below 1.2614 despite flashing multiple bounces off 1.2583.
• Brexit negotiations go haywire amid hopes of Germany’s leadership to deliver results in October.
• Chinese state media warns UK to prepare for “substantial damage” after British PM Johnson’s favor to the Hong Kong citizens.
• Brexit talks, US employment data and US-China headlines will be in the spotlight.

Having stepped back from the five-week high of 1.2633, GBP/USD remains under pressure around 1.2590 while heading into the London open on Friday. It should, however, be noted that the pair’s recent declines have been confined by 1.2583.

Be it the UK’s refrain to let go of fisheries or the European Union’s (EU) refrain to open single market access, the key round of the Brexit negotiations have so far marked no real progress. There are other stumbling blocks like the regional legislation and the British declined to extend the deadline that together contributes to the present deadlock. However, the Duchy of Lancaster, Michael Gove, showed optimism that Germany’s rolling presidency, to be effective soon, will bring the “needed” leadership.

On the other hand, Germany's Ambassador to the European Union (EU) Michael Clauss said on Thursday that Britain will have to give up some sovereignty if it wants to reach a free-trade pact with the European Union.

Other than the Brexit, the Tory government’s coronavirus (COVID-19) handling is also under attack. The much-championed contact tracing app of the UK is likely to be imperfect until September, as per Tony Prestedge, the chief operating officer of the National Health Services (NHS) scheme.

Furthermore, UK PM Boris Johnson’s offer to refuge 3.0 million Hong Kong citizens gained an ire from Chinese state media. The Global Times said that No 10 would have more to lose than Beijing while also hinting no trade deal with the Asian major. In response, the British Secretary of State for Foreign and Commonwealth Affairs Dominic Raab signaled the UK was prepared for that.

On a broader scale, the return of the US-China tension and the pre-NFP trading lull seems to restrict the early-Friday moves of the market. Also contributing to the lack of major momentum could be a light calendar ahead.

Given the last-day of the key Brexit talk rounds, any updates concerning the departure will be important for the GBP/USD pair amid a lack of major data from the UK. Also, the monthly employment data from the US and news concerning the Sino-American tussle could act as extra directives for the pair traders. Forecasts suggest downbeat prints of the US data but the greenback’s losses versus the GBP are likely to be limited by the Brexit uncertainty and pessimism surrounding the UK’s handling over pandemic.

Read: US Non-Farm Payrolls May Preview: Context is everything

Technical analysis

Bearish divergence on the four-hour chart increases the importance of an ascending trend line from May 29, at 1.2525 now, as immediate support. Alternatively, the pair’s run-up past-1.2640/50 area, comprising highs marked in April month, enables it to challenge 1.2700 while also aiming for February 2020 low close to 1.2725.