- The GBP/USD outlook is weak amid a stronger dollar and a weak UK economy.
- UK CPI and BoE comments are important events to watch this week.
- Technically, the probability of an upward correction exists.
The GBP/USD outlook remains vulnerable as the week starts with the US dollar well bid against risk assets. Although the British pound tried to recover a bit, the renewed heat of the Russian-Ukrainian crisis brought fresh selling around 1.2640.
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The UK economy on Friday showed a surprise GDP contraction of 0.1% in October, weighing on the pair. The data also showed that the economy could not flourish in the third quarter. The data fueled a rally in the dollar that began about two weeks ago amid Trump’s victory. Market analysts are reassessing the Fed’s rate cut policy for next year.
According to CME’s FedWatchTool, the probability of a 25 bps rate cut in December fell from 77% to 62%. Fed officials are also unclear about the future path of the rate, which could be subdued, given data on economic growth and employment.
Moreover, recent comments from Donald Trump adviser Stephen Moore put pressure on the pound. He said that Great Britain must choose between the European Union and the United States. The US government will not be interested in working with the UK if it keeps the EU ahead of the US.
Key events to watch
The economic calendar is empty today. Therefore, market moves are likely to be dominated by risk sentiment and technical levels. For the current week, market participants are looking at UK CPI data and comments from the BoE.
GBP/USD Technical Outlook: Buyers are holding the 1.2600 level
The 4-hour chart of GBP/USD is showing weekly momentum with the last few bars moving in a narrow range. The price lies well below key moving averages, revealing an upside for sellers. However, the RSI indicates an overbought condition with a bullish divergence that may lead to profit taking by sellers. This could trigger a corrective move up towards the 1.2700 area.
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Alternatively, a break of the 1.2600 area could gather further selling traction and lean towards 1.2575 ahead of the 1.2550 area and finally 1.2510. Lower time frames such as 30 minutes or 15 minutes should be monitored to keep an eye on early signs of a trend reversal.
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