Technical Analysis

GBP/USD Price Analysis – Jan 08, 2024

By LonghornFX Technical Analysis
Jan 8, 20244 min

Daily Price Outlook

The GBP/USD currency pair failed to extend its upward trend and dropped to around the 1.2708 level. The reason for its declining streak can be attributed to high Treasury bond yields and a bullish US dollar. Notably, the lowered possibility of quick interest rate cuts by the Federal Reserve, driven by a strong US economy and positive job reports, is underpinning the US dollar. In contrast to this, recent upbeat economic indicators from the United Kingdom (UK) are likely to help the GBP/USD pair limit its deeper losses. According to the UK Consumer Credit data, individuals' borrowing showed improvement in November. Additionally, the S&P Global/CIPS Composite PMI for December demonstrated positive signs, including an increase in Services PMI.

UK Economic Positivity Boosts GBP, but Gloomy Outlook Raises Concerns for GBP/USD Pair

Furthermore, the UK's positive economic signs, such as improved borrowing in November and a rise in Services PMI for December, likely boosted the British Pound (GBP). However, the uptick in the GBP was short-lived due to a gloomy economic outlook. Investors are concerned about the Bank of England (BoE) having to make difficult choices because of possible risks of a recession and high inflation. Many people want the BoE to act fast, and UK business leaders are asking them to lower interest rates quickly. The Institute of Directors' survey also supports these worries, as it shows that British directors are feeling less optimistic about the country's economic future.

Therefore, the positive economic signs in the UK lifted the British Pound (GBP) against the US Dollar (USD). However, concerns about a gloomy economic outlook and calls for lower interest rates may introduce challenges for the GBP/USD pair in the near term.

Federal Reserve's Unlikely Rate Cut Amidst Strong US Economy and Positive Job Reports Pressures GBP/USD Currency Pair

It's important to mention that investors are lowering their expectations for the Federal Reserve to cut interest rates quickly because of the strong US economy and positive job reports. The robust economy, combined with some Fed officials talking tough, is keeping bond yields high, helping the US Dollar and putting pressure on the GBP/USD currency pair. In December, the job report was better than expected, with 216K new jobs and a steady unemployment rate of 3.7%. Despite a small drop in the services sector, the overall economic signs are good.

So, because the Federal Reserve is unlikely to quickly lower interest rates, thanks to the strong US economy and good job reports, the GBP/USD currency pair is going down.

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

GBP/USD - Technical Analysis

As of January 8th, the British Pound against the US Dollar (GBP/USD) is exhibiting subtle fluctuations, currently down by a marginal 0.13%, trading at 1.27032. This minor change indicates a tug of war between bullish and bearish sentiments in the forex market.

The GBP/USD pair finds its pivot point at 1.2791, a key level that could determine its immediate market trajectory. The pair faces immediate resistance at 1.2862, followed by higher resistance at 1.2950. These resistance zones are crucial, as overcoming them could signal a shift towards a bullish market trend.

Conversely, support levels are situated at 1.2630, 1.2540, and 1.2469. These levels are essential in preventing further depreciation of the Pound against the Dollar. A breach of these support levels could intensify the bearish pressure.

The Relative Strength Index (RSI) for GBP/USD stands at 52, slightly above the neutral threshold, indicating a lean towards bullish market sentiment. The Moving Average Convergence Divergence (MACD) also shows a bullish signal, with its value crossing above the signal line.

The currency pair is trading near its 50-Day Exponential Moving Average (EMA) of 1.2697, a critical juncture that suggests a potential balance between short-term bullish and bearish trends. Chart analysis does not reveal any significant patterns at this stage, keeping the market outlook neutral.

In summary, the GBP/USD pair presents a balanced market outlook. The currency pair's future movements hinge on its ability to break through the mentioned resistance or support levels. The current market sentiment is cautiously optimistic, but traders and investors are advised to watch these key levels closely, as shifts in these technical indicators could swiftly change the market's direction.

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