Technical Analysis

GBP/USD Price Analysis – June 5, 2024

By LonghornFX Technical Analysis
Jun 5, 20243 min

Daily Price Outlook

During the European trading session, the GBP/USD currency pair maintained its upward trend despite the Bank of England expected to deliver two rate cuts this year. It is currently trading around the 1.2771 level, having hit an intra-day high of 1.2784.

However, the reason for its upward trend could be attributed to the bearish US dollar, which recently lost traction due to previously released downbeat US economic data. This boosted expectations that the Federal Reserve will cut interest rates later this year.

In contrast, the BoE's expected rate cuts put downward pressure on the GBP/USD pair due to anticipated changes in interest rate differentials.

Impact of Speculated Fed Rate Cuts and Weak US Economic Data on GBP/USD Pair

On the US front, the broad-based US dollar edged lower due to growing speculation that the US Federal Reserve will cut interest rates in September, with the CME FedWatch tool showing a 65% chance of a rate cut, up from 47% a week ago.

This shift is driven by a weak US ISM Manufacturing PMI report for May and downwardly revised Q1 GDP data. These economic indicators have increased the likelihood of a Fed rate cut, affecting the dollar's momentum.

On the data front, the Job Openings and Labor Turnover Survey (JOLTS) showed a significant drop in job openings by 296,000 to 8.059 million in April, the lowest in over three years. This, along with weak US ISM Manufacturing PMI data, suggests a slowing US economy.

The ADP report is expected to show a smaller increase in private payrolls, 173K compared to 192K in April. The ISM Services PMI is projected to rise slightly to 50.5, indicating growth.

Therefore, the speculation of Fed rate cuts and weak US economic data are pressuring the USD, boosting the GBP/USD pair as the dollar weakens against the pound.

Anticipated Bank of England Rate Cuts and GBP/USD Impact

On the UK front, investors are eagerly awaiting signals from the Bank of England (BoE) regarding potential interest rate cuts. Market expectations suggest the BoE might implement two rate cuts this year, with August being the earliest possible time for this adjustment.

This anticipation reflects a move toward policy normalization amid economic uncertainties. As investors await clarity on the BoE's stance, the probability of rate cuts is influencing market sentiment and could impact the GBP/USD pair, with potential fluctuations as the market digests the BoE's decisions.

Thus, the anticipated rate cuts by the Bank of England could weaken the GBP against the USD due to shifts in interest rate differentials and market sentiment regarding the UK's economic outlook.

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

GBP/USD - Technical Analysis

The GBP/USD pair is currently trading at $1.27798, up 0.01% on the four-hour chart. The currency pair is experiencing a minor uptick amid a generally cautious market environment. Key price levels to watch include a pivot point at $1.2818.

Immediate resistance is located at $1.2819, with further resistance levels at $1.2855 and $1.2893. On the downside, immediate support is observed at $1.2705, followed by supports at $1.2675 and $1.2644.

Technical indicators provide a moderately bullish outlook. The Relative Strength Index (RSI) is currently at 55, indicating that the pair is in neutral territory with a slight bias towards buying pressure.

The 50-Day Exponential Moving Average (EMA) is positioned at $1.2748, suggesting that the pair remains supported above this level.

In the current market scenario, the recommended entry price for a buy position is above $1.27605. Traders should set a take profit target at $1.28177, aligning closely with the pivot point, and place a stop loss at $1.27226 to manage potential downside risks.

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