Technical Analysis

GBP/USD Price Analysis – June 12, 2024

By LonghornFX Technical Analysis
Jun 12, 20244 min

Daily Price Outlook

Despite the bullish US dollar and downbeat US economic data, the GBP/USD currency pair maintained its upward trend and remained well-bid around the 1.2757 level, hitting the intra-day high of 1.2760 level.

However, its upward trend can be attributed to the high wage growth in the UK. Higher wages typically indicate a strong economy, as consumers have more purchasing power, which can lead to increased spending and economic growth.

As a result, investors perceive the currency as more valuable and therefore be more inclined to invest in it, leading to an appreciation of the GBP.

On the flip side, the UK economy failed to grow in April as a mild expansion in the services sector was offset by a decline in Industrial Production and construction output. The decrease in manufacturing sector activity was driven by lower production in the pharmaceutical and food sectors, the data showed.

The UK Office for National Statistics (ONS) reported that the economy remained stagnant, as economists expected, signaling a subdued start to the second quarter. This was seen as a key factor ttat kept the lid on any additional gains in the GBP/USD pair.

Impact of UK Economic Performance on Monetary Policy

On the UK front, the economy showed no growth in April, as predicted by economists, signaling a slow start to the second quarter. This was due to a slight expansion in the services sector being offset by declines in industrial production and construction output.

Manufacturing output and industrial production, which measure factory activity, dropped more than expected, with manufacturing output falling by 1.4% and industrial production by 0.9%.

This weaker factory data suggests that households and businesses are struggling with high interest rates set by the Bank of England, potentially prompting the Bank to consider easing its monetary policy sooner. However, high wage growth remains a hurdle for the Bank, with wages rising by 6.0% in the three months to April, well above the desired inflation rate of 2%.

The stagnant economy and weak industrial data may weaken the GBP, but high wage growth could support it by reducing the likelihood of immediate monetary easing by the Bank of England.

Impact of US Inflation Data and Fed Policy on GBP/USD Pair

On the US front, the broad-based US Dollar has been gaining momentum before the release of the US Consumer Price Index (CPI) data for May and the Federal Reserve’s monetary policy announcement.

The CPI figures will shape expectations on whether the Fed will adjust interest rates. With recent robust job creation and wage growth, there's less anticipation for rate cuts starting in September. Annual core inflation is predicted to slow to 3.5%, while headline inflation is expected to hold at 3.4%.

The Fed is likely to maintain rates but investors will scrutinize the dot plot, signaling future rate movements, with expectations for fewer cuts than previously thought due to tight labor market conditions and lingering price pressures.

Therefore, the GBP/USD pair could experience fluctuations against the US Dollar based on the US inflation data and the Fed's monetary policy decision, influencing market sentiment and expectations for future interest rate changes.

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

GBP/USD - Technical Analysis

The GBP/USD pair is currently trading at $1.27507, showing a marginal decline of 0.00% for the session. The pivot point at $1.28 is a crucial level for today's trading. Immediate resistance is exactly at this pivot point, followed by further resistance at $1.2850 and $1.2900.

These levels are critical as they indicate potential barriers for any upward movement in price.

On the downside, immediate support lies at $1.2700, followed by $1.2650 and $1.2600. A break below these support levels could suggest a continuation of the bearish trend, adding downward pressure on the pound.

Technical indicators provide a mixed outlook. The Relative Strength Index (RSI) stands at 56, indicating a neutral momentum with a slight bullish bias.

The 50-day Exponential Moving Average (EMA) is positioned at $1.27, with the current price trading just above this level. This setup suggests a potential for upward movement if the pair maintains its position above the EMA.

Given the current technical environment, the outlook for GBP/USD remains cautiously bullish. An entry price for a buy limit order is recommended at $1.27337, with a take profit level set at $1.27712. To manage risk, a stop loss is suggested at $1.27167.

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