GBP/USD Price Analysis – Feb 05, 2024
Daily Price Outlook
The GBP/USD currency pair continues its declining streak, dropping further to around the 1.2610 level. However, the bearish momentum is primarily driven by the robust performance of the US dollar, reaching an eight-week high. However, this surge in dollar strength is attributed to upbeat market sentiments and the lower chance of a March rate cut by the Federal Reserve. In contrast to this, Huw Pill from the Bank of England said rate cuts might not happen soon. This was seen as a key factor that may help the GBP/USD limit its deeper losses.
US Job Market Strength and Fed's Cautious Approach Impact GBP/USD
It's worth noting that the US job market showed strength as the Nonfarm Payrolls added 353,000 jobs in January, beating expectations. Average Hourly Earnings also rose by 4.5%, exceeding the predicted 4.1%. Federal Reserve Chair Jerome Powell mentioned that the March meeting is likely too soon for rate cuts. Powell emphasized the Fed's cautious approach, stating that although confidence is increasing, they need more assurance before taking the crucial step of initiating rate cuts.
Therefore, the previously released upbeat US data and reduced likelihood of a Fed rate cut were seen as key factors that kept the US dollar higher and contributed to the losses in the GBP/USD pair.
Looking ahead, traders are keeping an eye on indicators like the ISM Services Employment Index for more insights into the US labor market.
Bank of England's Cautious Stance Favors GBP/USD Strength
Apart from this, the head of the Bank of England, Andrew Bailey, did not discuss lowering interest rates and highlighted potential price increases in the second half of the year. The bank appears more focused on controlling inflation than being concerned about a recession. Chief Economist Huw Pill mentioned that they might contemplate rate cuts later on due to uncertainty about lasting inflation. Pill emphasized the need for strong evidence before deciding to reduce policy rates.
Therefore, the cautious stance of the Bank of England, prioritizing inflation management over rate cuts, will contribute to a relative strength in the GBP/USD pair.
GBP/USD - Technical Analysis
The British Pound is trading cautiously against the US Dollar, with GBP/USD at $1.26099, teetering near a crucial technical juncture. The currency pair’s activity is hovering just above a significant support level at $1.25997, forming a potential double bottom pattern—a bullish technical formation that often precedes a reversal. The Doji candlestick that has emerged above this support level suggests indecision but could also signal a gathering bullish momentum if buyers begin to outweigh sellers.
The pivot point, a dynamic marker of price equilibrium, stands at $1.26982, with the pair currently operating below this threshold. Resistance levels are identified at $1.27174, $1.27478, and $1.27748, each potentially capping upward movements. Conversely, immediate support lies at the double bottom of $1.25997, with subsequent support anticipated at $1.25143 and $1.24782.
The RSI is positioned at 46, indicating that the pair is not in an extreme territory and may have room for upward movement. The 50-day EMA at $1.26982 coincides with the pivot point, reinforcing the significance of this price level as a determinant for the pair’s near-term trajectory.
In conclusion, while the GBP/USD displays potential for a bullish resurgence, this is contingent on the pair's ability to sustain above the double bottom support level. The recommended trading approach is to consider long positions above an entry price of $1.25994, targeting a profit at $1.26588, while maintaining a stop loss at $1.25619 to manage risk.
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