Technical Analysis

GBP/USD Price Analysis – Jan 15, 2024

By LonghornFX Technical Analysis
Jan 15, 20244 min

Daily Price Outlook

During the European session on Monday, the GBP/USD currency pair extended its upward rally, maintaining a positive stance around the 1.2760 level. The rise in the GBP/USD pair was supported by a combination of factors, including a weaker US dollar and encouraging production data from the United Kingdom (UK).

The US Dollar (USD) experienced a decline due to lower US bond yields and softer Producer Price Index (PPI) data from the United States (US).

Furthermore, heightened tensions in the Middle East, particularly the military attacks on Iran-led Houthi targets by the United States (US) and the United Kingdom (UK), have dampened market sentiment, affecting the GBP/USD pair.

Factors Influencing USD Decline and Potential Impact on GBP/USD Pair

It's worth noting that the US Dollar Index (DXY) is giving up some of its earlier gains, mainly due to a drop in US Treasury yields. Currently, the 2-year and 10-year yields on US bonds are lower at 4.14% and 3.94%, respectively. The market is increasingly speculating on potential rate cuts by the US Federal Reserve (Fed) in March. This speculation gained momentum after Barclays revised its forecast last Friday, bringing forward the expected date of the first rate cut.

Additionally, the softer-than-expected Producer Price Index (PPI) data released on Friday may be putting downward pressure on the US Dollar. The December PPI figure was 1.0% year-on-year, up from the previous 0.8%. The Core PPI year-on-year was 1.8%, down from 2.0% in November. Monthly, both the headline and Core PPI indices remained at a 0.1% decline and 0.0%, respectively.

Therefore, the news suggests a weakening US Dollar due to lower yields and potential rate cuts, impacting the GBP/USD pair positively. Traders may find the Pound more attractive amid Dollar uncertainties.

Positive UK Data Fuels Confidence for GBP/USD Pair

At home, the GBP/USD pair might be gain further ground, thanks to better UK production data from Friday. The UK's industrial sector showed a positive rebound in November, as reported by the Office for National Statistics (ONS). Monthly industrial production met expectations, contrasting with the previous decline. On the annual basis, UK Manufacturing Production saw growth, but Total Industrial Output slipped by 0.1% in the same period.

Meanwhile, January's Rightmove House Price Index improved by 1.3% compared to a previous decline of 1.9%. Yearly, it eased by 0.7% against December's 1.1% drop. Traders are likely eyeing upcoming labor market data, including Claimant Count Change and ILO Unemployment Rate (3M).

Therefore, the GBP/USD pair could see a boost with improved UK production data, signaling economic resilience. Positive industrial and housing indicators may enhance confidence, potentially leading to increased demand for the British Pound against the US Dollar.

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

GBP/USD - Technical Analysis

The GBP/USD pair opens the week with a slight bearish bias, trading down by 0.09% at 1.27378. This subtle yet noticeable downtrend in the early hours of Monday indicates a market grappling with recent economic cues and geopolitical events. A look at the daily chart time frame reveals critical levels that could dictate the pair's short-term trajectory.

The pivot point for the pair is narrowly above its current price, at 1.2739, suggesting a tentative balance in market forces. Key resistance levels are lined up at 1.2803, 1.2849, and 1.2913, each representing a potential turnaround point for the sterling. Conversely, immediate support is established at 1.2688, followed by 1.2627 and 1.2576, which could provide cushioning in the event of a continued decline.

The technical indicators paint a picture of neutrality with a bearish undertone. The RSI is at a dead-even 50, reflecting a market in equipoise. However, the MACD tells a slightly different story, positioned at -0.00016 and below its signal line at 0.00095, hinting at a potential downtrend.

A critical observation on the chart is the presence of a downward trendline extending resistance at the $1.2780 mark. This line acts as a ceiling of sorts, with selling pressure expected below this threshold and buying sentiment potentially strengthening over the 1.2720 mark.

In conclusion, the GBP/USD pair presents a cautiously neutral to bearish outlook as it navigates through key technical levels. The balance of technical indicators suggests a market on the cusp of a directional decision, with traders advised to watch these key levels closely for signs of a definitive move.

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