Technical Analysis

GBP/USD Price Analysis – April 24, 2024

By LonghornFX Technical Analysis
Apr 24, 20244 min

Daily Price Outlook

Despite the improved UK economic outlook, the GBP/USD currency pair has been experiencing a bearish trend and remained well-offered around the 1.2616 level, hitting the intraday low of 1.2422 level. This downward movement can be attributed to several factors, including the renewed strength of the US dollar, which gained traction despite the disappointing release of the US PMIs, suggesting that the economic upturn lost momentum at the start of the second quarter.

In contrast to this, the stronger-than-expected Services PMI could be bullish for the British Pound (GBP), suggesting a robust UK services sector. Meanwhile, the strong new business volumes suggest healthy consumer spending, potentially leading to increased inflation. This might prompt the Bank of England to maintain or increase interest rates, supporting a bullish outlook for the Pound Sterling.

Impact of Bank of England Policies and PMI Data on GBP/USD Pair Volatility

On the UK front, the Bank of England's (BoE) plans to delay cutting interest rates and strong preliminary PMI data for April have fueled demand for the Pound and helped the GBP/USD pair to limit its downside trend. However, the market is divided on whether rate cuts will start in June or August. According to James Smith from ING Financial Markets, the decision could lean towards August because of concerns about sticky services inflation. However, BoE deputy governor Dave Ramsden believes inflation could drop faster than expected, while BoE policymaker Jonathan Haskel remains concerned about persistent inflation due to a tight labor market.

Hence, the uncertainty surrounding the Bank of England's interest rate decisions and differing views among policymakers create volatility for the Pound (GBP), despite initial demand spurred by strong PMI data.

On the data front, the latest preliminary figures from S&P Global/CIPS show mixed results for April. The Services PMI, a measure of the health of the services sector, rose to 54.9, much higher than expected, indicating robust growth. This was a surprise because investors thought it would drop slightly. Meanwhile, the Manufacturing PMI, which tracks the manufacturing sector, fell below the critical 50.0 mark that separates expansion from contraction, coming in at 48.7. This is a sharp drop from earlier expectations and the previous reading of 50.3, indicating that the manufacturing sector may be contracting after months of growth.

Therefore, the mixed PMI data could create volatility in the GBP/USD pair. The strong Services PMI could boost the Pound, while the weaker Manufacturing PMI might lead to uncertainty, impacting the currency's strength against the US Dollar.

Impact of Federal Reserve Policies and PMI Data on the US Dollar and GBP/USD Pair

On the US front, the overall US dollar is gaining strength because people expect the Federal Reserve to keep interest rates high for longer, due to ongoing inflation concerns. Therefore, the expectation that the Federal Reserve will maintain high interest rates strengthens the US dollar, potentially leading to a decline in the GBP/USD pair as the British pound weakens against the dollar.

On the US data front, the S&P Global Composite PMI, which shows the health of the US private sector, dropped to 50.9 in April, indicating slower growth. Both the Manufacturing PMI and Services PMI also showed weakening activity, with the Manufacturing PMI even entering contraction territory. These numbers suggest that the US economy is experiencing reduced momentum in its business activity.

GBP/USD Price Chart - Source: Tradingview
GBP/USD Price Chart - Source: Tradingview

GBP/USD - Technical Analysis

In today's session, the GBP/USD pair edged up modestly, marking a slight increase of 0.03% to a current price of $1.24527. The pair has navigated close to its pivot point at $1.2386, which acts as a key reference for future price movement.

GBP/USD faces immediate resistance at $1.2526, followed by higher barriers at $1.2580 and $1.2638. These levels represent crucial points that could limit upward momentum. Conversely, the pair finds immediate support at $1.2407, with further supportive cues at $1.2349 and $1.2304. These supports could play a significant role should the currency experience a pullback.

The Relative Strength Index (RSI) is currently at 58, indicating a mildly bullish sentiment but nearing overbought conditions which could prompt a corrective pullback. The 50-day Exponential Moving Average (EMA) stands at $1.2431, slightly below the current price, suggesting a potential resistance zone around this average. Additionally, the presence of a doji candlestick pattern just below the downward trendline at approximately $1.2450 suggests that selling pressure could intensify.

The technical setup suggests a cautious approach to the GBP/USD pair, with a recommendation to initiate a sell position if the price drops below $1.24598. The target for taking profits is set at $1.23859, with a stop loss at $1.25123 to mitigate potential risks.

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