GBP/USD Price Analysis – Jan 22, 2024

Daily Price Outlook

Despite the softer UK Retail Sales data, the GBP/USD currency pair maintained its upward trend and remained well bid around the 1.2720 level. However, the upticks in the GBP/USD pair were mainly bolstered by the sluggish US Dollar amid a risk-on sentiment. Meanwhile, the Pound (GBP) gained ground against the US Dollar (USD), likely due to a positive market sentiment. In contrast ot this, the GBP/USD pair faced challenges after disappointing December Retail Sales data was released in the United Kingdom (UK) on Friday.

UK Retail Sales Decline Poses Challenges for BoE and GBP/USD Pair

It's worth noting that the Office for National Statistics (ONS) released December's Retail Sales data. The numbers show a significant drop of 3.2%, surpassing the expected decrease of 0.5%. On a yearly basis, there's a 2.4% decline, opposite to the expected increase of 1.1%. This sharp fall in consumer spending could create a challenge for the Bank of England (BoE) in maintaining a tight policy without risking an economic downturn. BoE policymakers are closely watching for more data to see if underlying inflation is moving toward the targeted 2.0% level in a timely and sustainable way.

Therefore, the sharp decline in UK retail sales may pressure the GBP/USD pair as it signals weakened economic activity. Investors may anticipate potential challenges for the Bank of England's policy decisions.

Geopolitical Tensions and Rate-Cut Expectations Impact USD and GBP/USD Pair

Furthermore, the broad-based US Dollar is down for the second day, driven by lower 10-year US yields. However, this reflects expectations that the US Federal Reserve (Fed) might cut rates more than other major central banks in 2024. The DXY hovers around 103.10, with the 10-year bond yield at 4.11%. However, the US Dollar could get support due to its safe-haven status amid concerns about Red Sea maritime trade. In the meantime, the geopolitical risk may boost demand for the US Dollar, pressuring the GBP/USD pair.

Therefore, the weaker US Dollar, driven by lower yields, may provide some relief for the GBP/USD pair. However, geopolitical tensions in the Red Sea favor the US Dollar's safe-haven status, exerting downward pressure on GBP/USD.

GBP/USD - Technical Analysis

The GBP/USD pair exhibits resilience as it inches up by a modest 0.10% to 1.2715. Amidst a cautiously optimistic market sentiment, Sterling leverages a slight edge over the Dollar. Technically, the pair has carved out a pivot point at 1.2686, anchoring as a fulcrum for potential price swings.

Resistance is charted progressively at 1.2785, 1.2857, and 1.2948, each a potential inflection point for bullish momentum. Should the pair retract, support layers await at 1.2615, with further cushions at 1.2518 and 1.2447, ready to absorb any downward pressure.

The RSI at 56 suggests moderate momentum, neither overextended in bullish fervor nor bearish retreat. The MACD indicator offers a nuanced narrative; a slight bullish convergence as the MACD line (0.00056) overtakes the signal (0.00026), hinting at a creeping bullish sentiment that could propel the pair forward.

The 50-day EMA at 1.2697 has been eclipsed, a testament to the pair's upward drive. This breach, coupled with a cascade of bullish candles anchoring above the EMA line, underlines a potential strategic entry point for long positions.

Concluding this technical synopsis, GBP/USD's current posture is tentatively bullish, presenting a buying opportunity above the 1.2700 threshold, with an initial profit objective at 1.2750 and a stop loss to safeguard against reversal at 1.2670.

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