Technical Analysis

GBP/USD Price Analysis – March 20, 2024

By LonghornFX Technical Analysis
Mar 20, 20244 min

Daily Price Outlook

The GBP/USD currency pair has been trading on a bearish note and failed to stop its previous five-day losing streak. It is currently trading near 1.2720, as the US dollar continue to gain traction in the wake of expectations that the Fed will maintain its benchmark interest rate steady at its March meeting. Fed Chairman Jerome Powell has emphasized the need for more evidence that inflation is on a sustainable path toward its 2% target before considering lowering interest rates. As a result, lower expectations for a rate cut may lift the US dollar and kept the GBP/USD pair under pressure.

Moving ahead, Investors are closely monitoring two key events that could influence the direction of the GBP/USD pair, the UK February Consumer Price Index (CPI) inflation data and the Federal Reserve (Fed) interest rate decision.

Impact of Robust US Consumer and Producer Inflation Figures on GBP/USD Pair

On the US front, the previously released strong consumer and producer inflation figures in the United States fueled speculations that the Federal Reserve would adhere to its higher-for-longer interest rates narrative. This expectation has bolstered confidence in the US dollar and contributed to the downward pressure on the GBP/USD pair. The Fed's cautious approach to monetary policy, aimed at controlling inflationary pressures, has prompted investors to favor the US dollar over the British pound.

Therefore, the Fed plans to keep interest rates high until inflation stays consistently at or above its target, while the Bank of England aims to balance inflation control with supporting economic growth. This difference in approach between the two banks is putting pressure on the GBP/USD pair.

UK CPI Inflation Report and Its Impact on GBP/USD Pair

On the UK front, the UK CPI inflation report for February is expected to provide insights into the Bank of England's (BoE) monetary policy stance. The headline CPI is projected to rise by 3.6% month-on-month, slightly lower than the 4.0% increase recorded in January. Meanwhile, the Core CPI figure is forecasted to decline to 4.6% year-on-year in February from a 5.1% rise in January.

Hence, the stronger-than-expected CPI inflation report could convince the BoE to maintain its higher interest rates for a longer period, thereby supporting the pound against the US dollar. But if inflation eases, the BoE might hint at cutting rates, which could weaken the pound against the dollar

Traders will closely monitor the UK CPI inflation report ahead of the Fed interest rate decision. Following these events, attention will turn to Chairman Jerome Powell's press conference and economic projections, as well as the BoE interest rate decision on Thursday. These developments could provide clarity and direction to the GBP/USD pair in the coming days.

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

GBP/USD - Technical Analysis

The GBP/USD pair showed minimal movement today, marking a slight decrease of 0.01% to settle at 1.27197. This subdued activity comes amidst a backdrop of critical technical levels that traders are keenly watching. The pivot point for today stands at 1.26677, indicating a pivotal juncture for future price movements. Resistance levels are clearly defined at 1.27600, 1.28077, and 1.28593, suggesting areas where upward momentum may face challenges. Conversely, the currency pair finds immediate support at 1.26721, with additional safety nets at 1.26416 and 1.26119, which could arrest further declines.

Technical indicators reveal a nuanced picture: the Relative Strength Index (RSI) stands at 42, pointing to a potential undervaluation that could entice buyers. Meanwhile, the 50-Day Exponential Moving Average (EMA) at 1.27432 hovers above the current price, suggesting a slight bearish sentiment in the near term.

Given these observations, the overall trend appears tilted towards bearish, with a recommended strategy to sell below 1.27394, targeting a take profit level at the pivot point of 1.26677, and setting a stop loss at 1.27752. This approach underscores a cautious yet strategic positioning amidst the pair's current technical landscape.

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