Technical Analysis

GBP/USD Price Analysis – June 3, 2024

By LonghornFX Technical Analysis
Jun 3, 20244 min

Daily Price Outlook

During the European trading session, the GBP/USD currency pair continued its downward trend, hovering around the 1.2705 level and reaching an intraday low of 1.2694.

This decline could be attributed to uncertainties regarding potential rate cuts by the Bank of England (BoE) and reduced inflation expectations. Such uncertainties signal possible economic challenges and influence market sentiments.

Additionally, the weakening US dollar, fueled by growing speculation of interest rate reductions by the Federal Reserve (Fed) in the near future, acted as a significant factor that prevented further losses in the GBP/USD pair.

Traders seem hesitant to place any strong bids as they anticipate a data-packed week in the United States.

The key focus will be on the Institute for Supply Management (ISM) Manufacturing Purchasing Managers Index (PMI) for May, which is expected to rise slightly but still indicate contraction in factory activity.

Meanwhile, the preliminary S&P Global PMI for May showed a slight improvement, but it is not enough to shift market sentiment. Investors are particularly interested in the New Orders and Price Paid indexes within the PMI report, as these subcomponents give insights into demand and inflation, affecting GBP/USD movements.

Impact of BoE Rate Cut Uncertainty on GBP/USD Pair

On the UK front, investors are uncertain about when the Bank of England might cut interest rates. Markets predict a potential rate reduction starting in August. Although UK annual headline inflation dropped to 2.3% in April, BoE policymakers are concerned about slow progress in reducing service sector inflation.

It should be noted that the service sector inflation, currently at 5.9% due to wage growth, remains well above the 2% target. However, UK inflation expectations for the next year have significantly decreased, with a recent survey showing public expectations at 3.1% in May, the lowest since July 2021.

Therefore, the ongoing uncertainty surrounding BoE rate cuts and inflation concerns in the UK have influenced the GBP/USD pair, contributing to a cautious market sentiment. Investors are closely monitoring these factors for potential impacts on the currency pair's movements.

Influence of Speculation and Economic Data on GBP/USD Pair

On the US front, the broad-based US dollar has been on a bearish trend and declining due to growing speculation about potential Federal Reserve (Fed) interest rate cuts amid signs of easing inflation. However, the latest US inflation report, meeting expectations, has fueled this speculation further.

Following weak consumer spending data, investors are more confident in at least one Fed rate cut this year. However, the CME FedWatch tool indicates a 52% probability of a rate cut in the September meeting, up from 49% a week ago.

On the data front, the US Bureau of Economic Analysis (BEA) recently reported a 0.3% increase in the Personal Consumption Expenditures (PCE) Price Index for April, matching the expected annual rate of 2.7%.

Meanwhile, the Core PCE Price Index, excluding volatile components like food and energy, also met expectations with a 2.8% yearly increase. However, annual core PCE inflation grew as expected at 2.8%, while the month-on-month data grew by just 0.2%, missing estimates.

Personal spending in April rose at a slower pace of 0.2%, below estimates and the previous release of 0.7%.

Therefore, the bearish trend in the US dollar, driven by speculation of Fed rate cuts and easing inflation, is impacting both the US dollar's value and the GBP/USD pair, leading to increased volatility and fluctuations.

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

GBP/USD - Technical Analysis

GBP/USD is currently trading at $1.27182, down 0.20% in the 4-hour timeframe. The technical outlook for GBP/USD indicates it is trading just below the pivot point of $1.27258, suggesting a cautious market sentiment and potential further decline.

Immediate resistance is identified at $1.27652, with subsequent resistance levels at $1.27932 and $1.28217. On the support side, immediate support is at $1.26811, followed by $1.26483 and $1.26211, marking potential areas for buying interest.

The Relative Strength Index (RSI) is at 45, indicating that the market is neither overbought nor oversold, but leaning towards a neutral to slightly bearish sentiment. The 50-day Exponential Moving Average (EMA) is positioned at $1.27337, just above the current price, reinforcing a bearish short-term outlook.

Given the technical indicators and current market dynamics, the strategy for traders is to consider selling below $1.27247, with a take profit target set at $1.26800 and a stop loss at $1.27678.

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