- GBP/USD outlook is weak amid stronger dollar and weak UK economy.
- UK CPI and BoE commentary are important events to watch this week.
- Technically, probability of an upside correction exists.
The GBP/USD outlook remains vulnerable as the week starts with the US dollar well bid against the risk assets. Though the British pound attempted to slightly recover, the renewed heat from Russia-Ukraine crisis brought fresh selling around 1.2640 area.
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On Friday, the UK economy showed a surprising contraction in GDP by 0.1% in October, which weighed heavily on the pair. The data also showed that the economy could not flourish in the third quarter. The data fueled the dollar rally started around two weeks ago amid Trump’s victory. Market analysts have been reassessing the Fed’s rate cut policy for the next year.
According to CME’s FedWatchTool, the probability of a 25-bps rate cut in December has dropped from 77% to 62%. Fed officials are also unclear on the future rate path, which could be slowed down, keeping in view the economic growth and jobs data.
Moreover, Donald Trump’s advisor Stephen Moore’s recent comments pressured the pound. He said that the UK 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. Hence, the market moves will likely be dominated by the risk sentiment and technical levels. For the current week, the market participants eye UK CPI data and BoE commentary.
GBP/USD Technical Outlook: Buyers holding 1.2600 level
The 4-hour chart of the GBP/USD shows a week momentum with last few bars moving in a tight range. The price lies well below the the key moving averages, revealing an upper hand for the sellers. However, the RSI indicates an overbought condition with a bullish divergence that may result in sellers’ profit taking. This could trigger a corrective upside move towards 1.2700 area.
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Alternatively, breaking the 1.2600 area may gather further selling traction and tilt towards 1.2575 ahead of 1.2550 and finally 1.2510 area. The lower timeframes like 30-minutes or 15-minutes should be watched to keep an eye on early signs of trend reversals.
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