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The British pound continues to draw in traders with Brexit drama still in full effect, so this pullback in GBP/USD is one to watch and see if traders will jump back in the downtrend at better prices.

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What to Watch: GBP/USD

GBP/USD 1-Hour Forex Chart
GBP/USD 1-Hour Forex Chart

On the one-hour chart above of GBP/USD, we get a glimpse of the weakness that has been plaguing the British pound over the past few weeks as Brexit tensions rise.

At the moment, we’re seeing a relatively shallow bounce compared to the strong move lower but is actually more than one daily ATR (about 135 pips) move from the Friday low or around 1.2765 to the current trading area just under the 1.2900 handle.

So, the bounce higher may be overextended, as suggested by the overbought signal from the Stochastic indicator, and the bears may be tempted to jump back in to play the bigger theme of a possibly no-Brexit scenario.

With today’s updates from the U.K. still suggesting that the EU and UK will have a tough time working together, the odds are likely still in favor of Sterling bears.

And if we see a disappointing round of U.K. unemployment data ahead, it’s possibly the bears may hop back in around current levels, up to the previous swing high area around the major psychological level of 1.3000.

If that scenario plays out and the bears bring in downside momentum, the previous swing low around 1.2765 is the likely initial target for day traders, and longer-term traders will likely look for a break of that area.

For GBP/USD bulls, a better-than-expected round of U.K. unemployment data and/or a positive turn in Brexit headlines could be the driver to take the pair back up to 1.3000, and if you believe that to be the case, longing from current levels down to 1.2800 is something to look at, especially if the Stochastic indicator shows oversold conditions and/or broad risk sentiment continues to lean more positive.