GBP/USD Price Analysis – July 08, 2024
Daily Price Outlook
During the European trading session, the GBP/USD currency pair maintained its upward momentum, holding firm near the 1.2815 mark and reaching an intraday peak of 1.2822. This uptrend was fueled by several factors, including Keir Starmer’s landmark win in the UK parliamentary elections.
The Keir Starmer-led Labour Party gained an outright majority against Rishi Sunak’s Conservative Party.
The victory of the Labour Party with an absolute majority has brought political stability to the economy, resulting in significant strength in UK financial markets. On the other side, the bearish bias of the US dollar was seen as another factor that kept the GBP/USD currency pair higher.
Impact of Political Stability and BoE Uncertainty on GBP/USD Pair
On the BoE front, the near-term outlook for the British currency remains bullish following Keir Starmer-led Labour Party’s majority victory over the Conservative Party in the UK parliamentary elections.
This political stability has strengthened UK financial markets. However, uncertainty about the Bank of England's interest rate decisions remains high.
Despite annual headline inflation returning to the desired rate of 2%, financial markets currently see a 50% chance that the BoE will start reducing interest rates from the August meeting.
Therefore, the recent Labour Party victory boosts GBP/USD as political stability strengthens UK financial markets, though uncertainty over BoE rate cuts keeps the outlook mixed.
Impact on GBP/USD Pair Amid Weakening US Dollar and Fed Rate Cut Expectations
On the US front, the broad-based US Dollar weakened as the June Nonfarm Payrolls (NFP) report revealed weaker labor market conditions, with April and May job gains revised down by 111K and the Unemployment Rate unexpectedly rising to 4.1% from 4.0%.
These developments heightened expectations of earlier Federal Reserve interest rate cuts, with the CME FedWatch tool now showing a 75.8% probability of cuts in September, up from 64% a week ago.
Therefore, the US Dollar weakened broadly after the June NFP report showed weaker job growth and a higher unemployment rate, increasing expectations of earlier Fed rate cuts. This boosted the GBP/USD pair near 1.2800 as investors favored the Pound amid US economic uncertainty.
GBP/USD - Technical Analysis
The GBP/USD pair is currently trading at $1.28161, marking a modest increase of 0.05%. The 4-hour chart reveals several critical technical levels and indicators that traders should monitor closely. The pivot point is set at $1.2801, serving as a key threshold for potential bullish or bearish movements.
Immediate resistance levels are identified at $1.2837, $1.2865, and $1.2892. Breaking above these levels could signal further upward momentum for the pair. Conversely, support levels are found at $1.2767, $1.2735, and $1.2710. A drop below these support points could trigger a significant selling trend.
The Relative Strength Index (RSI) is currently at 69, suggesting that the GBP/USD pair is approaching overbought territory. Typically, an RSI level near 70 indicates that the asset may be overvalued, which could precede a price correction. Therefore, traders should be vigilant for any signs of a potential reversal.
The 50-day Exponential Moving Average (EMA) stands at $1.2743, reinforcing the bullish trend as long as the price remains above this average. The EMA acts as dynamic support, and maintaining a price above this level supports the ongoing bullish sentiment.
Given the current market setup, an effective strategy would be to enter a buy position above $1.28038. Setting a take-profit target at $1.28407 aligns with immediate resistance levels, providing a favorable risk-reward ratio while capturing potential gains. A stop-loss at $1.27821, just below the pivot point, helps limit downside risk from unexpected market movements.
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