Technical Analysis

GBP/USD Price Analysis – Jan 24, 2024

By LonghornFX Technical Analysis
Jan 24, 20244 min

Daily Price Outlook 

Despite the bullish US dollar and expectations that the Bank of England (BoE) will begin cutting rates as early as May, the GBP/USD pair has maintained its upward stance and remained well bid around the $1.2715 level. However, the reason for its upward trend can be linked to the upcoming release of January's UK advanced Manufacturing and Services PMI. On the other side, the anticipation of Bank of England rate cuts, starting in May, with a projected decrease to 4.25% from the current 5.25%, weighs on the GBP/USD pair.

Investors are also awaiting the US Gross Domestic Product (GDP) for Q4 on Thursday and the Core Personal Consumption Expenditures Price Index (Core PCE) on Friday. This data is adding to the cautious sentiment among investors, influencing their decision-making regarding strong positions.

BoE Rate Cut Speculation and Economic Data Concerns Impact GBP/USD Pair

It's worth noting that investors are betting on the Bank of England (BoE) cutting interest rates, starting as early as May. They predict three more cuts in 2024, bringing rates down from the current 5.25% to 4.25%. However, there's no expected change in the BoE's monetary policy in February. Moving on, the traders focus now is on Wednesday's data release. Notably, the UK's preliminary S&P Global Services PMI is expected to slightly drop from 51.4 in December to 51.0 in January. Meanwhile, the Manufacturing PMI is projected to stay steady at 47.9. Market players are closely watching these indicators for insights.

Hence, the speculation on Bank of England rate cuts is weighing on the GBP/USD pair, as lower interest rates can make the British Pound less attractive. In the meantime, the poor economic data could further impact the pair negatively.

Fed's Cautious Stance Boosts USD, Puts Pressure on GBP/USD Pair

Moreover, the Richmond Fed Manufacturing Survey reveals a decline in January's manufacturing index to -15, worse than expected. Shipments improved slightly, but new orders and employment dropped. So, Fed Governor Christopher Waller suggests a cautious approach to rate cuts, opposing a hasty decision. Atlanta Fed President Raphael Bostic hints at potential rate cuts in the third quarter, while San Francisco Fed President Mary Daly emphasizes the need for patience.

Therefore, the GBP/USD pair faces pressure as the Richmond Fed Manufacturing Survey shows a worse-than-expected decline in January's manufacturing index. Meanwhile, the US Dollar (USD) strengthens due to the Federal Reserve's cautious stance on rate cuts. The strong US dollar was seen as a key factor that kept the lid on any additional gains in the GBP/USD currency pair.

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

GBP/USD - Technical Analysis

The British Pound has seen a marginal appreciation against the US Dollar, recording a 0.07% rise to 1.26858 on January 24. This modest uptick comes as traders navigate a web of technical levels that will likely dictate the currency pair's short-term direction.

At the forefront is the pivot point at $1.2690, a critical juncture that could serve as a springboard for either trend continuation or reversal. The GBP/USD faces a series of ascending resistance levels: initial resistance sits at $1.2779, followed by $1.2853, and a more challenging level at $1.2952, which could cap upward price ambitions. On the flip side, the cable's immediate support can be found at $1.2610, with further cushions at $1.2520 and $1.2437, which could provide a fallback in case of bearish momentum.

The currency's current trading position is further complicated by the RSI, which hovers at a neutral 49, indicating no clear overbought or oversold conditions. The MACD presents a slight negative divergence at -0.00028, suggesting that bearish sentiment is not yet out of the picture. Conversely, the 50-Day EMA at 1.2699 lies in close proximity to the pivot point, adding to the confluence of indicators that traders are keenly watching.

In conclusion, the GBP/USD's near-term outlook is cautiously optimistic, with traders advised to consider long positions above the entry price of 1.26919, targeting a take-profit at 1.27370, while keeping a stop loss at 1.26658 to manage risk.

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