Technical Analysis

GBP/USD Price Analysis – Jan 03, 2024

By LonghornFX Technical Analysis
Jan 3, 20243 min

Daily Price Outlook

Despite weaker UK business confidence, the GBP/USD currency pair maintained its bullish bias and surged higher, reaching the 1.2640 level. The upward trend could be attributed to the subdued performance of the US dollar. The US dollar may face downward pressure due to moderate comments by the International Monetary Fund (IMF) Managing Director, Kristalina Georgieva. In contrast to this, the UK manufacturing output shrank faster at the end of 2023. Many expect the Bank of England (BoE) to lower interest rates starting in May 2024 because they believe the UK's economy is at risk of a technical recession. This was seen as one of the key factors that cap further gains in the GBP/USD pair.

Optimistic Outlook on the US Economy and its Impact on Currency Markets

It is worth noting that in a recent CNN interview, IMF Managing Director Georgieva expressed optimism about the US economy. She encouraged Americans to stay positive, highlighting a strong job market. Despite this, she mentioned that interest rates are expected to go down in 2024 due to lower inflation. This positive outlook suggests a potential relief from economic pressures and a less aggressive approach from the Federal Reserve on interest rates. This optimism might help keep the US Dollar Index strong, supported by higher US Treasury yields.

Therefore, Georgieva's positive outlook on the US economy could make the US Dollar stronger, affecting the GBP/USD pair. Investors might prefer the USD, possibly causing the value of the GBP against the USD to drop.

Gloomy Economic Outlook and Calls for BoE Rate Cut

Moreover, the British Pound (GBP) is facing challenges due to a gloomy economic outlook. However, the survey by the Institute of Directors showed that confidence among UK directors dropped further, with the Economic Confidence Index falling to 28 in December. Business leaders are urging the Bank of England (BoE) to quickly cut interest rates to help the struggling economy. S&P Global's comments added to worries, saying that UK manufacturing is declining faster at the end of 2023. Many expect the BoE to lower interest rates starting May 2024, showing concerns about the UK economy possibly going into a technical recession.

Therefore, the GBP/USD pair may experience a decline as the negative UK economic outlook, highlighted by decreased confidence and manufacturing contraction. The lower confidence and manufacturing decline suggest the Bank of England may cut interest rates, making the British Pound weaker.

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

GBP/USD - Technical Analysis

The GBP/USD pair on January 3rd, 2024, shows a slight upward trend, rising by 0.05% to 1.26363. The pair's movement is defined by pivotal technical levels, with key resistance set at 1.2686, 1.2749, and 1.2826, while support lies at 1.2572, 1.2533, and 1.2500.

The Relative Strength Index (RSI) of 39 suggests a bearish sentiment, albeit not in oversold territory. Trading below its 50-Day Exponential Moving Average (EMA) of 1.2698, the pair indicates a short-term bearish trend. However, the GBP/USD is poised for a potential retracement above the $1.2610 mark, offering a buying opportunity.

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