Technical Analysis

GBP/USD Price Analysis – June 26, 2024

By LonghornFX Technical Analysis
Jun 26, 20244 min

Daily Price Outlook

During the European trading session, the GBP/USD currency pair failed to halt its downward trend and remained well-offered around the 1.2657 level.

The reason for its downward trend can be attributed to the bullish US dollar, which gained traction on the back of hawkish comments from key Federal Reserve officials, indicating that the central bank is unlikely to cut interest rates soon, given the robust US economic conditions.

Meanwhile, investors are shifting their focus towards the upcoming US core Personal Consumption Expenditures (PCE) Price Index data for May, set to be published on Friday.

On the other side, high wage inflation is preventing Bank of England (BoE) policymakers from committing to interest rate cuts. Additionally, the BoE's stance on maintaining higher interest rates helps limit losses for the GBP/USD pair.

Impact of Hawkish Fed Comments on GBP/USD Pair and USD Strength

On the US front, the broad-based US dollar continued its upward trend following overnight hawkish comments from influential Federal Reserve officials, signaling reluctance to cut interest rates soon amid a robust US economy.

This stance boosted US Treasury bond yields, bolstering the USD and exerting pressure on the GBP/USD pair.

Investors are now focused on the US core PCE inflation data, the Fed's preferred gauge, expected to show annual softening to 2.6% in May from 2.8%. Monthly figures are also anticipated to slow to 0.1% from 0.2% in April, providing clues on the timing and extent of potential rate cuts this year.

Currently, markets anticipate a rate-cut cycle starting in September, with possible extensions in November or December, despite some Fed policymakers advocating for patience until sustained inflation moderation supports such actions.

Fed Governor Michelle Bowman recently underscored maintaining rates amid inflation concerns, suggesting no cuts in 2024 unless disinflation persists or reverses.

Therefore, the hawkish Fed comments strengthened the USD, pressuring the GBP/USD pair lower as higher Treasury yields made the dollar more attractive relative to the pound.

Impact on GBP/USD Pair Amid UK Policy and Economic Dynamics

On the UK front, the Pound Sterling has shown strength against most currencies, driven by concerns about policy differences as UK wage growth remains robust. However, it weakened against the Australian Dollar and USD after Australia's CPI surged to 4.0%, dampening expectations for rate cuts by the Reserve Bank of Australia.

aUnlike the SNB, BoC, and ECB, which are easing policies, the Bank of England has not committed to near-term rate cuts due to persistent service sector inflation. Investors anticipate rate reductions starting in August amid political uncertainty ahead of UK parliamentary elections, where Labour is seen as gaining ground over the Conservatives.

Therefore, the Pound Sterling's strength against most currencies contrasts with its weakness against the Australian Dollar and USD, influenced by robust UK wage growth and expectations for rate cuts by the Reserve Bank of Australia amid policy divergence.

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

GBP/USD - Technical Analysis

The GBP/USD pair is currently trading at $1.26679, reflecting a decline of 0.14%. The 4-hour chart reveals a pivot point at $1.2649, which is a critical level for determining the market's direction. Immediate resistance levels are identified at $1.2690, $1.2715, and $1.2740.

Conversely, immediate support is found at $1.2622, followed by $1.2604 and $1.2584.

The Relative Strength Index (RSI) stands at 43, indicating a neutral market sentiment with a slight lean towards bearishness.

Additionally, the 50-day Exponential Moving Average (EMA) is positioned at $1.2670, acting as a significant resistance level close to the current price, reinforcing the bearish outlook.

The technical indicators suggest that GBP/USD remains under pressure, with the bearish trend prevailing below the pivot point of $1.2649. A break below this level could lead to further declines towards the immediate support at $1.2622, and potentially lower towards $1.2604 and $1.2584.

Conversely, if the pair manages to break above the immediate resistance at $1.2690, it could signal a shift towards a bullish trend, targeting higher resistance levels at $1.2715 and $1.2740.

For traders, the recommended strategy is to sell at a limit price of $1.26891, aiming for a take profit at $1.26492, with a stop loss set at $1.27148. This approach capitalizes on the current bearish sentiment while ensuring risk management through a well-placed stop loss.

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