GBP/USD falls by about 100 pips before settling closer to 1.2900 now
Cable was treading close to its 200-hour MA (blue line) earlier @ 1.2960 before UK PM Johnson offered a surprise response to the EU summit yesterday in calling for preparations of a no-deal Brexit by January next year.
That saw sellers push price all the way down to 1.2865 near the week's low, before recovering some ground amid a test of the 50.0 retracement level @ 1.2879 as well.
Currently, price action is volatile but sticking around 1.2880-00 for the most part.
All things equal, the risks are still tilted to the downside for the pound based on what we know so far. If Johnson does follow through on pulling the plug, the economic consequences would be terrible and it isn't something the market should take lightly.
But at the same time, there's every chance that this could be another threat to get the EU to move on the outstanding issues in negotiations. I mean Johnson also hinted at that by saying that if the EU changes its position fundamentally, the UK will listen.
That said, the first consideration is still something that may overwhelm the narrative in the immediate term and weigh on the pound amid fears of a 'worst-case scenario'.
Watch out for a break below this week's low @ 1.2863. That will very well open the door for a push towards the 100-day moving average @ 1.2836 next and sellers could gain more momentum if that gives way in the coming sessions.
As for risks to look out for now, it will be the EU's response to the matter. But I reckon in the next week or two, both sides will be playing poker and saying that they are fine with pursuing a no-deal outcome until someone decides to reach out.
