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Summary: During Monday's European session, the GBPUSD strengthened, firmly holding above 1.2600 and reaching a two-month high. This asset received upward support from hawkish comments from the Bank of England and a general weakening of the US dollar. Economic data from both countries takes center stage this week.

Fundamentals

The fundamental outlook for the week largely hinges on the US, where busy economic data is expected to further indicate whether the economy has cooled sufficiently to meet expectations of a rate cut by the Fed in 2024.

The recent increasing expectations of a Fed rate cut have boosted global investor sentiment, concurrently supporting the Pound and weakening the safe-haven US dollar.

On the US economic calendar, the weekly jobless claims to be released on Thursday is worth watching, as investors will question whether last week's decline was merely a temporary phenomenon. Another unexpected drop below market expectations could trigger some nervousness and support for the US dollar.

The Fed's preferred Personal Consumption Expenditures (PCE) inflation data will be released concurrently with the weekly jobless claims, reflecting the release of the Consumer Price Index (CPI) and showing declines in the overall and core indicators to 3.1% and 3.5%, respectively.

Additionally, it's needed to pay attention to how Fed officials articulate their views before the FOMC "quiet period." Most notably, Fed Chairman Powell's speeches on Friday will be closely watched.

While the Fed is unlikely to change rates at the final policy meeting of the year next month, the market will carefully listen to policymakers' strong opposition to rate cuts in 2024.

Apart from some speeches by Bank of England (BoE) members, there are no significant events on the UK economic calendar this week, potentially allowing the Pound to rise further as it relies on fading positive risk sentiment. If global stock markets continue to rise, the Pound against the Euro and the US Dollar may benefit, as it tends to be supported by positive market sentiment.

A notable change from last week is the rise in UK government bond yields, as the market expects the BoE's rate cut in 2024 to be less than anticipated seven days ago. This contrasts with mild changes among its US and European counterparts. Due to a robust economy, the market has delayed expectations for the BoE's first rate cut to later in 2024. Given that the latest UK data broadly aligns with BoE expectations, we expect Bank officials to continue resisting market expectations of a rate cut.

Technical Analysis

The GBPUSD rose by 1.14% last week, marking the highest weekly closing price since early September. This upward movement was driven by some better-than-expected economic survey data indicating renewed growth in the UK economy in November.

From a technical standpoint, the asset's upward movement suggests that the market is forming an improving trend. Over the past week or so, the GBPUSD pair has broken above the 100-day and 200-day SMAs, receiving support for bullish momentum from oscillators in intraday, daily, and weekly charts.

We anticipate that the asset will find support in the short term after a minor dip to the 1.2580 range, with the potential for a continuation of the rebound thereafter. The target is the 61.8% Fibonacci retracement level of 1.3141-1.2036 at 1.2716. On the downside, a break below the minor support at 1.2523 would shift bias to neutral, leading to consolidation before another potential rebound. In terms of strategy, caution is recommended against chasing the market, with a focus on buying the dips.

Trading Recommendations

Trading Direction: Long

Entry Price: 1.2580

Target Price: 1.2760

Stop Loss: 1.24777

Valid Until: 2023-12-11 23:55:00

Support: 1.2591, 1.2580, 1.2523

Resistance: 1.2657, 1.2722, 1.2747