GBPUSD Forecast: Pound Weakens with GDP Contraction, Key Support Level in Focus

Key Events

• Markets are preparing for pivotal central bank announcements and outlooks for 2024 as the holiday season approaches.
• Recent data indicates that the UK's GDP contracted by -0.1%, raising uncertainties ahead of the Bank of England's decision on Thursday.
• The upcoming FOMC and BOJ meetings on Wednesday and Thursday are anticipated to contribute to significant market fluctuations.
• Important events for the British pound to monitor include Flash PMI on Monday, employment data on Tuesday, and the BOE's policy announcement on Thursday.

US Data

After the increase in US CPI and PPI data, the market has priced in a potential Federal Reserve rate cut for next week, leading to the US Dollar index stabilizing above the 107 level. If resistance at the 108 level is broken, currencies could hit critical lows, urging central banks to implement aggressive measures to maintain economic stability. Institutions such as the Swiss National Bank, Bank of Canada, and People’s Bank of China have already initiated considerable actions, with the European Central Bank possibly following suit amidst uncertainties linked to upcoming policies.

UK Data

The expectation for the Bank of England to maintain current interest rates stems from inflationary pressures associated with new labor regulations. However, the contraction in GDP to -0.1% raises alarms about economic resilience, complicating the BOE's decision-making framework. Increased volatility in the British pound is likely next week, influenced significantly by the flash PMI readings on Monday and the employment data on Tuesday, both of which will be crucial in informing BOE's perspectives.

Technical Analysis: Quantifying Uncertainties

GBPUSD Forecast: Weekly Time Frame – Log Scale

Source: Tradingview

Utilizing the Fibonacci extension tool drawing from the 2021 peak, 2022 trough, and the 2024 pinnacle, the recent decline in GBPUSD has encountered support at the 0.272 extension level. The next crucial support is identified at the 0.382 extension. If GBPUSD fails to maintain its rebound above the significant 1.2480 threshold, it could lead to further declines testing support areas evident from the lows of October 2023 and February 2023, with critical zones at 1.21 and 1.19.

On the positive side, the current candlestick formation above the 1.25 support zone suggests a potential weekly bullish reversal, marked by a bullish engulfing pattern. Key resistance points crucial for restoring a bullish outlook include levels at 1.30 and 1.3170.