GBP/USD Forecast: Sterling's Consolidation Capped At $1.3360

The GBP/USD is moving higher in a consolidation mode on Monday gaining some 0.35 percent against the US Dollar after it fell as low as $1.3300 last Friday.

The GBP/USD was a classic “buy the rumor, sell the fact” example falling as much as 0.8 percent against the US Dollar after the UK government and the EU reached the deal moving the Brexit negotiations into the second phase of dealing with trade, but conditioned the deal with issues like ultimate rule of the European Court of Justice, that is likely to face tough opposition in the UK.

There are only minor macro data are due this week and the market is unlikely to be moved by the final revision of Q3 GDP at 0.15 percent y/y. First, because the GDP is a backward-looking indicator and second because it is one of the lowest growth rates in Europe. With such fundamental setup, it looks like the US Dollar is set to take over during the pre-Christmas week, supported by the US tax reform bill, that looks increasingly likely to be passed by the US lawmakers by the mid-week.

Technically the GBP/USD is still stuck in the downside trading just off its key support level at $1.3320 once again. The GBP/USD is now moving within range of $1.3320-$1.3450, both being Fibonacci 38.2 percent and 23.6 percent retracement lines of the uptrend starting on August 24 at $1.2770 and peaking on September 20 at $1.3660.

The technical oscillators are pretty neutral with Relative Strength Index on the 4-hour chart just below 50 neutral line and pointing upward while Momentum is just below zero being neutral. Slow Stochastics moved from the Oversold to the Overbought condition from Friday to Monday, indicating fragile recovery on GBP/USD higher, but still within the downward trend. On the upside, the $1.3360 that has previously served as a support level will; now act as a resistance with further hurdle at round big figure of $1.3400, where selling pressure should arise.

With fundamentals being stronger on the US Dollar side, the question of further GBP/USD slide lower is related only to how much Selling Momentum will be given the pair by the US tax reform bill.

GBP/USD 4-hour chart