GBP/USD remaining in a tight range.

Bullish view

• Buy the GBP/USD pair and set a take-profit at 1.2670.
• Add a stop-loss at 1.2520.
• Timeline: 1-2 days.

Bearish view

• Set a sell-stop at 1.2535 and a take-profit at 1.2490.
• Add a stop-loss at 1.2600.

The GBP/USD pair remained in a consolidation phase as investors reacted to the political situation in the UK. Sterling is trading at 1.2587, which was higher than this week’s low of 1.2437. It is about 3.50% above the lowest level in May.

Sterling continues its consolidation

The GBP/USD pair remained in a tight range on Tuesday as the UK parliament failed to impeach Boris Johnson. Tory members lacked the required 180 votes needed to impeach him.

This means that he will not face another impeachment in the next 12 months. In a statement, Johnson vowed to continue serving as the prime minister and implementing his plans. The pair showed no major movements because the vote was in line with what analysts were expecting.

The pair will likely remain in this range on Wednesday because there is no major scheduled economic event. The only important data to watch will be the UK house price estimate by Halifax. Based on the previous estimate by Nationwide, analysts believe that prices started to stabilize in May as mortgage rates rose.

The GBP/USD is also moving sideways as US bond yields retreat. The yield of the 10-year declined to 2.977% while that of the 30-year fell by 1.85% to 3.13%. The spread between the 10 and 2-year bond yields remained unchanged.

This price action is likely because investors are waiting for the upcoming American inflation data. The expectation is that the country’s inflation remained close to its 40-year high although it started to peak.

One sign of this is that some retailers will be forced to lower prices because of their high inventories. On Tuesday, Target said that it will start lowering some prices in the coming weeks because it over-purchased products to boost its readiness.

GBP/USD forecast

The four-hour chart shows that the GBP/USD pair has been in a tight range in the past few days. It managed to move to a high of 1.2590, which was slightly above this week’s low of 1.2438. It has also crossed the 25-day and 50-day moving averages and is approaching the important resistance level at 1.2666.

The Money Flow Index (MFI) has moved close to the neutral level of 50. Therefore, the pair will likely keep rising as bulls target the key resistance level at 1.2670.

House of Representatives agrees to President Trump’s proposal to increase aid to Americans; US Dollar Index falls by 0.34%; US economic data improves.

The US House of Representatives decided to back President Trump’s proposal to give additional stimulus payments to Americans in need, which has been a recent point of contention between both parties. Now the decision is in the hands of the Republican-controlled Senate, which risks losing its majority in the upcoming Georgia Senate run-off elections.

“To reject this would be in denial of the economic challenges that people are facing and it would deny them, again, the relief they need,” said Speaker of the House Nancy Pelosi.

Next week, Georgians will decide whether they prefer Republicans Kelly Loeffler and David Perdue to hold the state’s Senate seats, or instead support Democrats Raphael Warnock and Jon Ossoff, which would give the Democratic Party control of the House, Senate and presidency for the first time since 2011.

The race is very close, though betting for a Republican win seems safer at the moment. President Trump is set to campaign on the eve of the election.

If Senate Majority Leader Mitch McConnell chooses to hold a vote on the stimulus bill, he risks not getting enough votes to provide additional stimulus, putting at risk the Republican campaign in Georgia. It’s also a big dilemma for the party, which usually advocates for fiscal conservatism, especially since the current situation requires flexibility.

Until now, McConnell has not commented on the House of Representative’s decision, though an ongoing attempt to force a vote by Vermont Senator Bernie Sanders could be successful and force him and his colleagues to take a position.

The coronavirus crisis, even amid the current vaccination campaign, continues advancing in the United States. So far, 19,781,718 cases have been reported, as well as a death toll of 343,182, making the United States the most affected country in the world. Nearly 2 million Americans have already been vaccinated, below the government’s goal to vaccinate 20 million before the end of the year.

Economic Calendar

So far this week, no relevant data about the state of the US economy have been released, mainly due to the end of the year holidays.

Last week, the annualized gross domestic product for the third quarter was released at 33.4 percent, after being at 33.1 percent in the previous reading. It’s a significant improvement from last quarter’s figure, which stood at -31.4 percent.

The US Census Bureau reported that durable good orders rose by 0.9 percent, higher than expected, though lower than October’s 1.8 percent surge. Non-defense capital goods orders gained 0.4 percent, lower than expected and below October’s 1.6 percent.

Dollar Languishes

The US Dollar Index, which measures the greenback’s performance against a bundle of its main competitors, fell by 0.34 percent, relinquishing the previous week’s gains.

The House of Representative’s decision increased uncertainty regarding the future of the Republican-controlled Senate, now that the Georgia run-offs are approaching. The fact that the US is expanding its deficit strengthens the case for a continuing dollar depreciation.

“We see depreciation in the dollar continuing into 2021,” said a team of strategists at Goldman Sachs. “Liquidity dynamics and virus news flow may influence the timing of dollar weakness, but not necessarily the medium-term downtrend.”

The dollar has been losing steam over the last couple of months. So far this month, the greenback has dropped by 2 percent, posting losses for the second consecutive month as it fell by 2.31 percent in November.

US Economic Data Improves

Since our last report, US economic data has gotten slightly better.

The quarterly gross domestic product figure was recently revised up, higher than expected at 33.4 percent, according to data released by the Department of Commerce. It seems that consumer spending led the recovery in the third quarter, though there are already signs of it cooling off as retail sales declined in October and November.

Consumer Price Index data remained essentially unchanged since our last report, signaling an improvement in the monetary realm. In the same way, unemployment data signals an improvement in the labor markets.

Upcoming Events

This week is New Year’s eve, so not many relevant data about the state of the US economy is expected to be released.

• On Tuesday, October’s S&P/Case-Shiller Home Price Indices will be released.

• Pending home sales data for November will be published on Wednesday.

• Jobless claims data will be released on Thursday by the US Department of Labor.