Technical Analysis

GBP/USD Price Analysis – Jan 31, 2024

By LonghornFX Technical Analysis
Jan 31, 20244 min

Daily Price Outlook 

The GBP/USD currency pair extended its previous two-day losing streak, dropping near 1.2675 during the early European session. However, the downward trend is attributed to the bullish US dollar, driven by a risk-off market sentiment. Notably, US President Joe Biden has indicated a tiered approach in response to a specific situation following a deadly drone attack on US troops near the Jordan-Syria border. This has put downward pressure on market sentiment and boosted the safe-haven assets including US dollar.

Besides this, the US dollar also gained support from the JOLTS report published on Tuesday, indicating a strong labor market that may deter the Federal Reserve (Fed) from cutting interest rates in the first quarter. On the other hand, the Bank of England's commitment to a prolonged restrictive monetary policy to curb inflation could weigh on the GBP/USD pair.

US Dollar Resilience Amidst Falling Treasury Yields and Geopolitical Tensions: Factors Driving its Strength and Impact on GBP/USD

Despite falling US Treasury yields, the broad-based US Dollar managed to stop its declines and regained some positive traction near 103.60 level. However, the risk-off sentiment, driven by concerns such as the deadly drone attack, was seen as one of the key factors boosting the US Dollar. President Biden's response to a drone attack near the Jordan-Syria border adds uncertainty in the market.

In the meantime, the recent JOLTS report signaled a strong job market, reducing the chances of Fed rate cuts, supporting the Dollar, and pressuring GBP/USD. Additionally, improved Consumer Confidence and an upgraded US growth forecast by the International Monetary Fund also contribute to dollar strength against the Pound. Notably, the FOMC is expected to maintain a 5.5% interest rate, with a 43% chance of a March rate cut.

BoE's Cautious Monetary Stance: Potential Support for GBP/USD

On the other hand, the Bank of England (BoE) is likely to keep interest rates unchanged in its upcoming Thursday meeting, making it the fourth time in a row. BoE Governor Andrew Bailey hinted in December that there's more work to be done, and he expects inflation to reach the 2.0% target only by 2025.

Hence, the BoE is cautious about inflation and plans to stick to this approach for a while, which could strengthen the Pound (GBP) and prevent significant losses for the GBP/USD pair. Therefore, the BoE's expected decision to maintain interest rates and emphasize a cautious monetary policy to address inflation could potentially strengthen the Pound (GBP) and limit losses for the GBP/USD pair.

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

GBP/USD - Technical Analysis

The British Pound (GBP/USD) exhibits modest weakness on January 31, trading down by 0.15% to $1.268. The currency pair's movement is contained, with traders and investors scrutinizing key technical levels for directional clues.

At present, GBP/USD hovers just below a crucial pivot point at $1.2647. Should the pair decide to climb, it faces immediate resistance at $1.2706. If bullish momentum gathers pace, further resistances at $1.2768 and $1.2836 will come into play. Conversely, the pair is cushioned by immediate support at $1.2579, with additional safety nets at $1.2517 and $1.2447, levels which may serve as springboards for any potential rebound.

The Relative Strength Index (RSI) sits at 44, suggesting a slight bearish bias without extreme oversold conditions. The MACD presents an intriguing picture, with its value (-0.0002) just below the signal (-0.0007), indicating that the market is not firmly committed to a downward trajectory. The 50-day Exponential Moving Average (EMA) at $1.2690 is in close proximity to the current price, highlighting its relevance as a dynamic level of interest.

Taking into account the current technical landscape, GBP/USD's trend could be interpreted as cautiously bearish. A sell trade might be considered below $1.26964, targeting a moderate take-profit at $1.26562, while a stop-loss order could be prudently placed at $1.27308 to manage risk.

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