Technical Analysis

GBP/USD Price Analysis – Jan 01, 2024

By LonghornFX Technical Analysis
Jan 1, 20244 min

Daily Price Outlook

The GBP/USD currency pair has been going up, reaching levels above 1.2731. However, this rise is mainly because investors are becoming more confident about the global economy, with concerns about a recession easing. Central banks in the Western countries are expected to slow down their efforts to increase interest rates, making assets tied to risk more attractive.

The British Pound has performed well against the US Dollar, partly because the Bank of England (BoE) is likely to be slower in reducing interest rates compared to other major central banks. However, economic conditions in the United Kingdom are worsening, with the economy facing a technical recession due to weak demand. To prevent further economic contraction, the BoE may start cutting interest rates sooner, potentially impacting the outlook for the Pound Sterling.

Pound Sterling Challenges Amid Global Economic Uncertainty and Central Bank Dynamics

It is worth noting that the British Pound Sterling is experiencing an uptick owing to heightened market risk appetite. Investors are optimistic about the Pound's performance, anticipating the absence of a global recession and benefiting from reduced price pressures. The demand for risky assets is on the rise as investors foresee early rate cuts by the US Federal Reserve. While the foreign exchange market might remain calm towards the year-end, the upcoming release of the S&P Global PMI next week could inject some excitement.

Therefore, the Pound Sterling is rising with higher risk appetite, driven by optimism and reduced global recession fears. Investors anticipate US Federal Reserve rate cuts, but GBP/USD impact hinges on the Bank of England's decisions amid inflation and economic indicators.

Fed's Rate Cut Expectations and Key Economic Indicators

Furthermore, the US Dollar Index (DXY) is struggling to recover due to ongoing expectations of rate cuts by the Federal Reserve (Fed). Currently hovering around 101.40, the index may retreat to its five-month low near 100.60. The past two months have seen a sharp decline in the USD Index, as the Fed shifts from a prolonged higher interest-rate stance to potential rate cuts, aiming to avoid economic strain.

Therefore, the GBP/USD pair is likely to benefit from the US Dollar Index's struggle to recover, given ongoing expectations of Federal Reserve rate cuts. The Pound may see upward momentum against the weakening US Dollar.

Looking ahead, investors are keeping their eye on the ISM Manufacturing PMI and December Employment data next week. These indicators will guide expectations for the Fed's actions in its first 2024 monetary policy meeting on January 31.

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

GBP/USD - Technical Analysis 

As we step into the new year, the GBP/USD pair exhibits a relatively stable stance in the forex market. Trading at 1.27314, the pair has seen a marginal increase of 0.01%. The British Pound's performance against the US Dollar offers a glimpse into the intricate dynamics of the forex market, reflecting broader economic sentiments and policy shifts.

The weekly technical outlook places the pivot point for GBP/USD at $1.2621, a crucial level that could determine the direction of the pair's movement in the upcoming sessions. Resistance levels are identified at $1.2692, $1.2772, and $1.2841. These thresholds will likely serve as key points where the pair's upward trajectory could face challenges. On the flip side, support levels are marked at $1.2539, $1.2474, and $1.2398, providing potential areas of stability in the event of a downward trend.

The Relative Strength Index (RSI) stands at 49, hovering near the neutral midpoint and suggesting a balanced market sentiment without strong bullish or bearish bias. The Moving Average Convergence Divergence (MACD) is marginally negative at -0.0006, indicating potential for a downward shift but without significant bearish momentum. Furthermore, the GBP/USD pair trades just below its 50-Day Exponential Moving Average (EMA) of $1.2742, adding to the cautious outlook.

A noteworthy chart pattern is the symmetrical triangle formation, implying a period of consolidation. This pattern indicates that a breakout could be imminent, setting the stage for either an upward or downward trend depending on market dynamics and upcoming economic data.

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