GBP/USD. Oil Forecast: Two trades to watch

Multiple pound notes £5, £20 and £50 Pound Sterling
Fiona Cincotta
By :  ,  Senior Market Analyst

GBP/USD looks to US core PCE data ahead of next week’s central bank bonanza

  • GBP/USD falls across the week after soft UK data
  • US GDP was strong than expected at 4.9%
  • US Core PCE is forecast to ease to 3.7% from 3.9%
  • GBP/USD support seen at 1.2070

GBP USD Is falling, paring back some of yesterday's gains, and is on track to book losses across the week.

The pound has struggled across the week after UK retail sales and services PMI data have highlighted weakness in the UK economy and pointed to a potential UK recession in the second half of this year.

The recent series of weaker-than-expected data has raised bets that the Bank of England will leave interest rates unchanged when it meets on Thursday, November 2nd. A weaker economic outlook from the Bank of England and bets on the timing of a dovish pivot from the central bank could pressurize the GBP/USD.

In contrast, the US economy is proving to be significantly stronger. Data yesterday showed that the US economy grew at its fastest pace in nearly two years in Q3. GDP rose at 4.9% annually in July to September a level of growth that was last seen in Q4 of 2001 and up from 2.1% in Q2.

Robust consumer spending helped drive growth, with personal consumption expenditure rising 4% at an annual rate across the quarter, up from just 0.8% in Q2, reflecting a surge in American spending across the summer, despite the Federal Reserve's aggressive rate hiking cycle.

Attention now turns to US core PCE, the Fed's preferred measure for inflation, which is expected to cool to 3.7% YoY in September, down from 3.9%.

The data comes ahead of next week's Federal Reserve interest rate decision where the Fed is widely expected to leave interest rates unchanged at 5.25% to 5.5%. However, hotter-than-expected inflation coupled with strong growth could fuel bets of a December rate hike basting USD.

GBP/USD forecast – technical analysis

GBP/USD rebounded lower from the falling trendline resistance, breaking below the 20 sma before finding support at 1.2070. Sellers need to break down this level and 1.2040, the October low, to extend the bearish trend to 1.20, the psychological level.

Meanwhile, buyers must overcome the 20 sma at 1.2175 to extend gains towards 1.22 round number, 1.2225.

gbp/usd forecast chart

Oil is set for a weekly loss after choppy trade and the Middle East still in focus

  • Oil is on track to fall 4% this week
  • Middle East developments still in focus
  • Oil gains capped by the 20 sma

While oil prices are rising 1.3%, heading towards the European open, they are on track to book losses of over 4% across the week as fears surrounding the broadening of the Israel-Hamas war ease slightly and as the dollar is set to book another weekly gain.

The geopolitical risk premium for oil has lowered this week amid signs of a potential de-escalation in the war, as Israel continues to hold off from a ground assault in Gaza and world leaders push for diplomacy.

So far, crude shipments from the Middle East have seen little impact from the Israel-Hamas conflict, suggesting that initial fears of a disruption to oil supply were overdone. That is not to say that the geopolitical risk premium on oil can’t or won’t rise again, but for now, oil trades are more confident that other oil-rich nations won’t be drawn in. Developments in the Middle East remain the biggest influence on oil prices.

In addition to the Middle East, the strength of the US dollar ahead of next week's Federal Reserve interest rate decision is also keeping oil prices in check. The US central bank is widely expected to leave interest rates unchanged. However, the Fed has been clear in its intention of higher interest rates for longer, which could hurt oil demand in the coming year.

Still stronger than expected, US GDP data has supported the view that oil demand in the world's largest oil consumer could remain steady over the coming months.

Looking ahead, in addition to Middle East developments, attention will be on US inflation data and Baker Hughes rig count figures later today.

Oil forecast – technical analysis

Oil trades caught between the weekly low of 82.00 and the 20 sma, which has capped gains across the week at 85.25.

The 20 sma crossing below the 50 sma could keep sellers hopeful of further downside. A break below 82.00 is needed to bring 80.70, the October low, into focus.

Meanwhile, buyers will look for a rise above 84.50, the daily high to attack 85.25, the 20 sma and 86.00 the 50 sma, negating the near-term downtrend.

oil FORECAST CHART

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