Technical Analysis

GBP/USD Price Analysis – Jan 17, 2024

By LonghornFX Technical Analysis
Jan 17, 20244 min

Daily Price Outlook

Despite the bullish US dollar and softer-than-projected UK wage growth, along with ongoing geopolitical tensions in the Middle East, the GBP/USD currency pair maintained its upward trend and remained well bid above the 1.2650 level. The reason for this upward trend can be attributed to the upcoming December UK inflation data, measured by the Consumer Price Index (CPI). The CPI figure is expected to rise by 0.2% MoM, following a 0.2% drop in November.

UK Labor Market Update: Mixed Signals Raise Concerns and Potential Impact on GBP/USD Pair

The latest data from the Office for National Statistics (ONS) shows that the UK's unemployment rate held steady at 4.2% in the three months leading up to November, matching expectations. However, there is a slight concern as the number of people claiming jobless benefits increased by 11.7K in December, up from 0.6K in November.

On a positive note, the employment change for November saw a gain of 73K, compared to the previous 50K. Yet, wage growth has slowed down, with average earnings (excluding bonuses) dropping to 6.6%, and earnings (including bonuses) growing at a slower pace of 6.5%. This may prompt the Bank of England to consider cutting interest rates in the near future.

Therefore, the steady unemployment rate and positive employment change support GBP, but concerns over rising jobless claims and slowed wage growth may pressure the currency, impacting the GBP/USD pair.

Geopolitical Tensions and Fed Outlook Propel US Dollar, Creating Headwinds for GBP/USD Pair

Furthermore, tensions in the Middle East are boosting the appeal of the US Dollar as a safe-haven. A recent US airstrike on a Houthi missile facility in Yemen aimed to counter an imminent threat to ships. Additionally, decreased speculation of a Federal Reserve rate cut is lifting the Greenback. Fed Governor Christopher Waller emphasized a cautious approach to rate adjustments, reducing the likelihood of a cut. According to the CME FedWatch tool, investors now see a 67% chance of rate hikes starting in March. This development acts as a hurdle for the GBP/USD pair, favoring the stronger US Dollar.

Therefore, the rising Middle East tensions and reduced Fed rate cut expectations lift the US Dollar, posing a challenge for the GBP/USD pair.

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

GBP/USD - Technical Analysis

On January 17, the GBP/USD pair is trading at 1.25998, showing a decline of 0.28%. This movement in the forex market is critical for traders focusing on the short-term trends of the British Pound against the US Dollar. The 4-hour chart timeframe provides a detailed view of the key price levels that are pivotal for the day's trading.

The pivot point for GBP/USD is set at 1.25768, serving as a crucial juncture for determining the pair's direction. Resistance levels are identified at 1.26240, 1.26891, and 1.27375, which could pose challenges for bullish movements. Conversely, support levels are found at 1.28014, 1.25271, and 1.24786, offering potential floors for the pair.

Technical indicators shed light on the pair's momentum. The RSI is at a low of 26, indicating an oversold market condition that might lead to a potential rebound. The MACD stands at -0.00123, with the MACD line below the signal line at -0.00315, suggesting a bearish trend. The 50-Day EMA is currently at 1.26999, reinforcing the resistance zone.

A significant chart pattern observed is the violation of the upward trendline around the 1.2645 mark. The formation of a bearish engulfing pattern below this level suggests a selling trend, indicating a potential continuation of the downward momentum.

The overall trend for GBP/USD appears bearish. Traders might consider a sell strategy below 1.26381, with a take profit target at 1.25876 and a stop loss at 1.26702. The short-term forecast suggests the pair may test lower support levels, unless it breaks above the immediate resistance.

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