GBP/USD testing critical resistance ahead of UK elections

• GBP/USD remains elevated on hops of a Brexit breakthrough.
• Cable continues its rise into next week's election and tests the five-year downtrend resistance.

GBP/USD remains solid on the outlook of next week's UK election where the Conservatives are maintaining a commanding lead. GBP/USD is currently trading at 1.3158 at the time of writing, having travelled from a lof of 1.3102 to a high of 1.3165. 

Expectations that PM Johnson's deal will remove the risk supports GBP

GBP continues its rise into next week's election while the slight deterioration in the Conservative party's lead seems to have stalled. It is widely hoped that the December 12 election will bring some form of closure of the political uncertainty in the UK on expectations that PM Johnson's deal will remove the risk of the UK crashing out of the EU. This means that there is further upside potential for sterling.

"In this scenario, GBP/USD has the potential to rally towards the 1.32 area on the election result. That said, there is a significant risk that the pound will be unable to hold these gains," analysts at Rabobank argued. 

"Our central view assume that that trade deal will be in place and that GBP/GBP will be trading at the 1.35 area on a 12 month view. However, our forecast that a no deal Brexit could push GBP/USD towards the 1.15 area stands."

GBP/USD levels

Cable is showing signs of momentum around the five-year downtrend at 1.3156 and at the 50% retracement of the move down from 2018 at 1.3167 and the 1.3187 May high.

"Minor support is offered by 1.3013 October high and the 20-day ma at 1.2916 and this guards the 1.2768 8 the November low. Failure at 1.2768 would probably see a slide to the 200-day ma at 1.2698. This guards the 1.2582 September high. Below 1.2582 lies the 1.2548 uptrend line. It guards 1.2196/94," analysts at Commerzbank explained.