Technical Analysis

GBP/USD Price Analysis – Oct 04, 2023

By LonghornFX Technical Analysis
Oct 4, 20233 min

Daily Price Outlook

During the European session, the GBP/USD pair extended its sideways movement for a second consecutive day. It currently hovers near its lowest level since March 16, a point it reached earlier this week. It has slipped below the 1.2100 mark, raising concerns of a potential continuation of its downtrend, which originally commenced three months ago, stemming from a peak in July.

However, the bearish sentiment is largely attributed to growing expectations that the Federal Reserve may opt to raise interest rates once again, consequently boosting US bond yields. This upward movement in yields is strengthening the US dollar, as it attracts investors seeking higher returns. Moreover, a ongoing risk-off marker sentiment further bolstering the demand for the US dollar as a safe haven asset and contributed to the GBP/USD pair losses.

Adding to the mix is the unexpected decision by the Bank of England to leave interest rates unchanged. This unexpected move continues to exert downward pressure on the British pound, further complicating the outlook for the currency pair

Factors Supporting the Strong Performance of the US Dollar

It's worth noting that the US Dollar is remained strong and stands near a 10-month high. This is because of the Federal Reserve's more aggressive stance on monetary policy, which is acting as a challenge for the GBP/USD pair. Investors believe that the Fed will keep interest rates high for a while longer. Some Fed officials have even suggested another rate hike this year to control inflation.

Furthermore, the recent jobs report showed a significant increase in job openings, hinting at possible wage increases. This might push the Fed to keep raising rates into 2024, which is good for the USD. On the other hand, the US bond market is causing some worries as borrowing costs rise rapidly. This makes investors more cautious about risky investments and favors the safe-haven US Dollar.

Factors Affecting GBP/USD Performance

Another factor that has been pushing the GBP/USD pair down is the unexpected decision by the Bank of England (BoE) to maintain its current policy stance in September. This surprising move has left investors uncertain about the future of UK monetary policy and has put downward pressure on the British Pound (GBP).

Looking forward, the market participants are awaiting the final UK Services PMI data, hoping it will provide new insights. Simultaneously, they are closely monitoring critical US economic indicators, such as the ADP report on private-sector employment and the ISM Services PMI.

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

GBP/USD - Technical Analysis

On October 04, the GBP/USD trading trajectory has taken an intriguing turn. Presently, this currency pair is floating around the 1.20551 pivot point, reflecting the complexities and nuances of the international currency market. The significant technical levels to monitor in the short term include immediate resistance at 1.21071, followed by 1.21398 and 1.21878. Conversely, the asset has marked its immediate support level at 1.20041, with additional cushions positioned at 1.19537 and 1.18987.

From the perspective of chart patterns, the GBP/USD's movement is showing signs reminiscent of a Fibonacci retracement. The pair appears poised to bounce off the 1.2050 region, potentially aiming for the 23.6% Fibonacci retracement level at 1.2100 or the 38.2% level at 1.2137. This suggests that the GBP/USD might undergo a short-term bullish correction.

In conclusion, despite the overarching bearish sentiment for the GBP/USD pair, there seems to be potential for a bullish correction, particularly if the price sustains above the 1.2050 level. Traders might consider initiating buy orders above this threshold and explore selling options should this level be breached. As always, it's crucial to remain vigilant of any emerging fundamental news that could recalibrate the market landscape.

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