Trade of the Week: GBPUSD capped below 200-day SMA?

• GBPUSD bulls rejected by 200-day SMA

• Big week for currency pair due to key UK data

• Watch out for potential dollar volatility amid high-risk events

• Prices back within wide range on daily charts

• Bears could mean business below 1.2320 level

GBPUSD bears could mean business after dragging prices back below a key resistance level.

Despite punching above the 1.2320 level earlier this month, bulls were halted below the 200-day SMA which saw prices slip back within a wide range on the daily charts.

The GBPUSD has been stuck within this range since late September with key support at 1.2080.

Given the barrage of economic reports from the United Kingdom and various events that could rock the dollar – a significant move could be on the horizon for the GBPUSD.

Here are 3 factors to watch out for this week:

1. Key UK data

The string of key UK economic data this week could offer fresh insight into the health of the economy and influence expectations around the BoE’s next policy move.

On Tuesday, all eyes will be on the latest employment report and speech by Bank of England chief economist Huw Pill speech. The jobs data is likely to offer more clarity on the health of the labour force with wage growth in sharp focus. Wednesday sees the highly anticipated inflation data for October which is expected to see a sharp drop amid lower energy prices. This is topped off with retail sales on Friday and a speech by Bank of England Deputy Governor Dave Ramsden.

As of writing, traders are currently pricing in a 1 in 10 chance of a 25-basis point BoE hike in December.

• Sterling is likely to weaken towards the 1.2080 support as more signs of a slowing jobs market and cooler-than-expected inflation data reinforces expectations around the BoE being finished with hikes.
• The pound could receive a boost towards the 1.2320 level if higher than expected UK economic data including inflation revives bets around another BoE hike beyond 2023.

2. Dollar volatility

As highlighted in our week ahead report, the dollar could experience heightened volatility this week.

It is set to be influenced by not only the incoming US inflation data on Tuesday but a string of significant reports throughout the week and speeches by numerous Fed officials. On top of this, the threat of a potential US government shutdown on Friday may add to the expected volatility, placing the dollar on a rollercoaster ride.

• The dollar could receive a boost if the US inflation data beats forecasts, overall economic data is encouraging, and the US government strikes a deal before the deadline. This development may drag the GBPUSD lower.
• Should the US CPI report print softer than expected, economic data disappoint and the US government experiences a shutdown, the dollar could be in the firing line. A weaker dollar has the potential to push the GBPUSD higher.

3. Technical forces

On the weekly charts, the close back below 1.2320 has placed bears in a position of power with prices trading below the 50, 100, and 200-week SMA.

Zooming back into the daily, we see a breakout/down opportunity with prices touching the 50-day SMA as of writing.

• A solid daily close above 1.2320 may encourage a move back toward the 200-day SMA at 1.2430

• Should prices fail to push back above 1.2320, bears could drag the currency pair toward the next key support at 1.2080 and 1.1930 – a level not seen since February 2023.

According to Bloomberg’s FX forecast model, there’s a 73% chance that GBPUSD trades within the 1.2109 – 1.2396 range this week.