Trade of the Week: GBPUSD in for an early-Christmas cracker?

<p><strong>By <a href="http://investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></strong></p>
<ul>
<li>GBPUSD has climbed about 4.9% so far in 2023</li>
<li>UK, US economic data to offer clues on BOE vs. Fed’s 2024 rates plan</li>
<li>Forecasted trading range: 1.2528 – 1.2788</li>
</ul>
<h3></h3>
<h3>Sterling is the second-best performing G10 currency against the US dollar so far in 2023.</h3>
<p>At the time of writing, GBPUSD has about <strong>4.9% in year-to-date gains</strong>, albeit with a couple of weeks left to go in the year.</p>
<p>The fact that Sterling is stronger against the US dollar so far this year is somewhat remarkable, in light of the UK’s ongoing economic woes.</p>
<p>Still, amid thinning market activity in this year-end period, traders are set to determine whether the year-to-date gains for “cable” (nickname for GBPUSD) will be extended, or thinned out, before 2023 officially comes to a close.</p>
<p>&nbsp;</p>
<h3><strong>Events Watchlist</strong></h3>
<p>GBPUSD traders are set to react to these UK and US economic data to be released later this week:</p>
<ol>
<li>Wednesday, Dec 20th: <strong>UK November consumer price index (CPI)</strong> – which measures inflation</li>
<li>Thursday, Dec 21st: <strong>US 3Q GDP (final print)</strong></li>
<li>Friday, Dec 22nd: <strong>UK November retail sales and 3Q GDP (final print)</strong></li>
<li>Friday, Dec 22nd: <strong>US PCE Deflator</strong> – the Federal Reserve’s preferred way of measuring inflation</li>
</ol>
<p><em>For the market’s forecasts for each of the above data points, please refer to the <a href="https://www.forextime.com/economic-calendar">FXTM Economic Calendar</a>.</em></p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<h3><strong>Why is the economic data important to GBPUSD traders?</strong></h3>
<p>Note that traders tend to boost the currency of the country that has higher interest rates.</p>
<blockquote>
<h3><strong><em>Hence, markets will be using the data to anticipate what the Bank of England and the Federal Reserve might do to their respective interest rates in 2024.</em></strong></h3>
</blockquote>
<p>Recall that, just last week, the<strong> Bank of England (BOE) threatened to keep its bank rate higher for longer</strong>, which is already at a <strong>15-year high of 5.25%</strong>, with the UK central bank apparently still not yet done with its fight against inflation.</p>
<p>In contrast, also last week, the <strong>Federal Reserve</strong> a.k.a the Fed had forecasted that it will be <strong>cutting US interest rates in 2024.</strong></p>
<p>Hence, no surprise that the Pound is about 0.9% stronger against the US dollar since this time last week (Dec 11th).</p>
<p>&nbsp;</p>
<p>&nbsp;</p>
<h3><strong>Potential Scenarios:</strong></h3>
<p>GBPUSD could be pushed higher if:</p>
<ul>
<li>the <strong>UK inflation data comes in above market forecasts</strong>, justifying the BOE’s bias for keeping its bank rate <strong>“higher for longer”.</strong></li>
<li>post-CPI gains for GBPUSD would have to be sustained by <strong>better-than-expected UK retail sales and GDP figures.</strong></li>
<li><strong>US 3Q GDP remains resilient </strong>while the <strong>PCE Deflators continue to ease lower</strong>, allowing the Fed to cut rates in 2024</li>
</ul>
<p>&nbsp;</p>
<p>However, GBPUSD could be dragged lower by:</p>
<ul>
<li><strong>a surprise uptick in the US PCE Deflators</strong> that threatens the Fed’s plans to lower US interest rates next year</li>
<li><strong>lower-than-expected UK inflation data, retail sales, and GDP figures</strong> that once again highlight the risk of the UK economy falling into a recession.
<p>The greater the damage to the UK economy, the less likely the BOE can afford to sustain its bank rate at this current 5.25% level.</li>
</ul>
<p><em>NOTE: Higher interest rates are intended to cool down inflation by destroying demand in an economy. However, interest rates that are too high for too long risks sending an economy into a recession.</em>​​​​​​​</p>
<p><img fetchpriority="high" decoding="async" class=" lazyloaded" src="https://www.forextime.com/s3-static/users/user16/GBPUSDDaily_25.png" alt="" width="1024" height="768" data-entity-type="file" data-entity-uuid="8746c0a4-d71b-42b1-8a71-2fa9e6492e4d" data-src="/s3-static/users/user16/GBPUSDDaily_25.png" /></p>
<h3><strong>Key levels</strong></h3>
<p>The Bloomberg FX model forecasts a <strong>75% chance </strong>that GBPUSD will trade between <strong>1.2528</strong> and <strong>1.2788</strong> this week.</p>
<p>Those levels serve as the general boundaries for GBPUSD’s expected trading range in this week leading up to Christmas.</p>
<p>Within that range, here are some key levels to look out for:</p>
<p>&nbsp;</p>
<p>POTENTIAL RESISTANCE</p>
<ul>
<li><strong>1.27335:</strong> November 29th intraday high</li>
<li><strong>1.27607:</strong> 38.2 Fibonacci level from GBPUSD’s long-term (June 2021 till September 2022) descent</li>
<li><strong>1.27943</strong>: Dec 14th intraday high</li>
</ul>
<p>&nbsp;</p>
<p>POTENTIAL SUPPORT</p>
<ul>
<li><strong>21-day simple moving average (SMA)</strong></li>
<li><strong>200-day SMA</strong></li>
</ul>
<hr />
<p><img decoding="async" class="size-full wp-image-54242 alignleft" src="https://www.investmacro.com/articles-analysis/wp-content/uploads/2014/07/Forex-Time-Logo.png" alt="Forex-Time-Logo" width="262" height="90" /><strong>Article by <span><a href="https://www.investmacro.com/contributors/contributor-profile-forextime/">ForexTime</a></span></strong></p>
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