Technical Analysis

GBP/USD Price Analysis – March 18, 2024

By LonghornFX Technical Analysis
Mar 18, 20244 min

Daily Price Outlook

The GBP/USD currency pair has been losing momentum and failed to stop its losing streak. It is currently trading at the 1.2730 level. However, the reason for its downward trend can be attributed to the bullish US dollar, which has been gaining traction in the wake of a hawkish Fed outlook. This outlook was anticipated to maintain heightened interest rates amidst recent inflationary pressures.

Furthermore, the rise in Consumer Inflation Expectations, along with a possible BoE rate cut, suggests weakness for the GBP currency, leading to downward pressure on the GBP/USD pair. In contrast, the strong increase in the Rightmove House Price Index could help limit losses for the GBP currency by indicating resilience in the UK housing market, potentially bolstering investor confidence.

US Economic Data and Interest Rate Speculation

On the US front, the US Dollar rose due to higher US Treasury yields, driven by expectations that the Federal Reserve would keep interest rates high to combat inflation. The recent strong inflation data suggested that policymakers might raise interest rates to manage inflation, indicating a more aggressive stance towards controlling rising prices. Hence, the indication of potential interest rate hikes in response to strong inflation data typically boosts the US dollar as it signals a more robust approach to controlling inflation.

At the time of writing, the likelihood of a rate cut in March is minimal, but it rises for June and July. These developments suggest uncertainty regarding the future direction of US interest rates, potentially influencing the value of the US dollar in international markets.

On the data front, the US Michigan Consumer Sentiment Index for March fell unexpectedly to 76.5, contrary to forecasts for stability. This suggests a potential decrease in consumer confidence. However, Industrial Production in February showed a slight increase of 0.1%, surpassing expectations, indicating a modest recovery in manufacturing activity after a previous decline. Therefore, the unexpected decrease in the US Michigan Consumer Sentiment Index may negatively impact the US dollar due to potential lower consumer confidence. However, the slight increase in Industrial Production could provide some support.

UK Economic Data and Market Speculation

On the UK front, Consumer Inflation Expectations, released by the Bank of England (BoE), rose to 3.0% but fell from the previous 3.3%. This led to speculation in the markets that the BoE might cut interest rates in June, potentially undermining the GBP currency and pushing the GBP/USD pair lower.

On the data front, the Rightmove House Price Index for March showed significant increases, both monthly and annually, indicating robust activity in the UK housing market. Thus, the significant increases in the Rightmove House Price Index for March suggest positive sentiment for the UK housing market, potentially bolstering investor confidence and supporting the GBP/USD pair. Traders are now eyeing upcoming UK market indicators such as the Consumer Price Index, Producer Price Index, and Retail Price Index for further insights into economic trends.

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

GBP/USD - Technical Analysis

On March 18, the GBP/USD pair saw a modest decline of 0.02%, positioning itself at 1.27332. This minor adjustment reflects the broader context of forex market fluctuations, where currency values are highly sensitive to geopolitical and economic news. For the British pound against the dollar, this particular day's trading activity underscores a cautious sentiment among investors, awaiting clearer signals from market drivers.

The GBP/USD is navigating through critical technical levels. With a pivot point at 1.2746, the currency faces immediate resistance at 1.2782, followed by higher barriers at 1.2825 and 1.2861. On the flip side, support levels are established at 1.2711, 1.2682, and 1.2648, marking thresholds where the pair might find some footing if the selling pressure intensifies.

The Relative Strength Index (RSI) at 36 suggests the pair is nearing the oversold territory, hinting at a potential upward correction if the sentiment shifts. However, the 50-Day Exponential Moving Average (EMA) at 1.2781 hovers near the first resistance level, indicating that the pound's path to recovery might not be smooth.

The trading strategy, considering these technical indicators, involves initiating a sell position below 1.27565, aiming for a take profit at 1.26927, and setting a stop loss at 1.27888, reflecting a tactful approach to navigating the GBP/USD's nuanced technical landscape.

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