GBP/USD Forecast: Trade deal haunts Sterling lower

The GBP/USD has been on a roller-coaster ride on Friday rising to $1.3520 early on Friday before slumping all the way down to $1.3400 level as the Brexit agreement before key European summit next week has been reached between the UK and the EU, but the EU officials cast suspicious clouds over the trade deal by March 2019.

Although the second week of December is packed with plenty of important macroeconomic indicators due as well as the Bank of England meeting, once again it is going to be all about political events for a direction of GBP/USD.

The UK and EU agreement includes a 45 billion EUR Brexit bill paid by the UK and rather vague promises on the sensitive issue of the Irish border that are likely to become an issue while discussing details of the trade deal. EU officials already indicated that the second phase of the Brexit negotiations will be much harder than the first one expressing doubts about the ability of both sides to reach the agreement before Brexit day in March 2019.

GBP/USD 15-minutes chart indicates strong pullback on Brexit related news

With Sterling ending last week at $1.3471 the first week of December is going to be negative for GBP/USD, although the currency pair managed to jump up to $1.3520 early on Friday.

Technically the GBP/USD is moving sideways, it is supported by pitchfork trendline upwards as indicated on the GBP/USD 15-minutes chat. On the top of it, there is little on the fundamental picture of the UK t push it substantially higher.

Key events ahead
The second week of December will see the UK inflation rising to 3.0% in November, the data are likely to point out on Tuesday. With inflation and 3.0% and wages are seen rising by 2.2% in October, the real, inflation-adjusted wage growth is set to remain negative putting pressure on British consumers. Along with the wage growth, the unemployment rate is expected to dwell at an unchanged level of 4.3% in three months to October, the report from Office for National Statistics is to say on Wednesday.

Whatever the development of both UK inflation and wages, the key macro event on Wednesday will be the FOMC rate decision. It is widely expected that Fed will hike the rates by 25 basis points after solid November labor market report in the US that saw a number of new jobs rising by 228K in November and disregarding slightly lower wage growth.

Key economic indicators scheduled for the UK on December 11-13, 2017

The second part of next week will see the UK retail sales report that is expected to see another month of monthly fall in the volume of retail sales in the UK and later on Thursday the Bank of England is scheduled to meet.

It is unlikely for the Bank of England to change the current setup of key monetary policy instruments after it increased the Bank rate by 25 basis points in November in what was considered a Dovish rate hike. Nevertheless, the wording of the accompanying statement and Minutes will be important to see how policymakers are viewing the development of the UK economy.

Key economic indicators scheduled for the UK on December 14-15, 2017

Technical Outlook
With spot price of GBP/USD falling massive 140 pips lower on Friday, the daily oscillators turned negative. Long-term the GBP/USD is still moving upwards supported by the bullish crossover of 100 day and 200-day moving averages from June. The 23.6% Fibonacci retracement of the upmove starting in March and extending to September this year coincides with the long-term trend support at $1.3240 that is seen as a key support level.

A short-term pullback on GBP/USD is expected by the market consensus of analyst polled by FXStreet.

GBP/USD daily chart

FXStreet Forecast Poll for GBP/USD