GBP/USD is in sync with 10-year bond yield differential

Tuesday’s big break above 1.30 handle in GBP/USD was followed by a failure to take out 1.3079 [61.8% Fib R of Aug 3 high - Aug 24 low] yesterday. The spot closed at 1.3042 and was seen trading around 1.3050 in the Asian session today. 

Rally backed by yield differential

A break above the 1.30 handle looks sustainable, given the drop in the US-UK 10-year bond yield differential. 

Head and Shoulders pattern

The yield differential chart above shows a bearish reversal pattern - head and shoulders. A break below the neckline support of 100 basis points would open doors for sharp gains in the GBP/USD. 

The spread did improve yesterday to 110 basis points from the previous day’s print of 105 basis points, although the bigger trend has been bearish [yield has been narrowing in favor of the British Pound since Q1. 

Brexit Bill set for the first debate in parliament - Bloomberg

The UK PM May’s flagship Brexit bill will be debated for the first time Thursday, giving opponents an  opportunity to lay out their objections in Parliament.  The British Pound could suffer losses if the debate ends up highlighting the rift between the political parties. 

GBP/USD Technical Levels

A break above 1.3031 [June 30 high and left shoulder high] has decreased the odds of the pair forming a bearish head and shoulders formation on the daily chart. Still, the bulls need a break above 1.3079 [61.8% Fib R of Aug 3 high - Aug 24 low] as it would add credence to Tuesday’s break above 1.30 and shall open doors for 1.3114 [July 14 low] - 1.3126 [July 18 high]. 

On the downside, breach of support at 1.30 [zero figure + 5-DMA] could yield a pull back to 1.2979 [50-DMA] and 1.2958 [10-DMA].