Technical Analysis

GBP/USD Price Analysis – May 22, 2024

By LonghornFX Technical Analysis
May 22, 20244 min

Daily Price Outlook

Despite the stronger US dollar, the GBP/USD currency pair maintained its upward trend and remained well-bid around the 1.2725 level, hitting an intraday high of 1.2763. The reason for its upward trend could be linked to the slower-than-expected decline in the Consumer Price Index (CPI) data for April. The slower decline suggests the Bank of England's measures are controlling inflation, boosting confidence.

This can lead to higher interest rates, attracting foreign investment and supporting the GBP. Apart from this, the bullish US dollar, backed by the hawkish Fed stance, was seen as another key factor that kept the lid on any additional gains in the GBP/USD pair.

Federal Reserve's Hawkish Stance Boosts USD, Potentially Impacting GBP/USD Pair

On the US front, the broad-based US dollar continued its upward trend, gaining momentum due to the Federal Reserve's hawkish stance on interest rates. The Fed plans to keep rates steady until there's evidence that inflation will consistently drop to the desired 2%. While there's been progress in reducing inflation after a three-month stall, policymakers want more evidence before considering rate cuts.

This stance has supported the dollar's strength, although speculation about rate cuts starting in September has limited its gains. Investors are now awaiting the Federal Open Market Committee's minutes from the May meeting for further details into the interest rate outlook.

Therefore, the cautious stance by the Federal Reserve, delaying rate cuts until inflation sustains at 2%, has strengthened the USD. This could weigh on the GBP/USD pair due to the dollar's strength.

UK Inflation Data and BoE Rate Cut Speculation Influence GBP/USD Pair

On the UK front, the Office for National Statistics reported that UK inflation declined slower than expected in April, indicating that the Bank of England's higher interest rates are effectively curbing inflation. This slower decline in inflation is likely to dampen expectations for BoE rate cuts, which were previously anticipated to begin in August.

In the meantime, speculation for rate cuts increased after BoE Deputy Governor Ben Broadbent suggested a possible cut in the Bank Rate during the summer if economic conditions align with their forecasts. This news has implications for the GBP as market expectations for rate cuts are shifting.

On the data front, the UK's Office for National Statistics reported higher-than-expected growth in consumer price inflation for April. Year-over-year, headline inflation reached 2.3%, surpassing expectations of 2.1%, but it dropped from the previous reading of 3.3%. Monthly headline inflation also beat estimates at 0.3%, but significantly decreased from March's 0.6%.

Meanwhile, the annual core CPI, which excludes volatile items, rose by 3.9%, exceeding consensus but slowing down from March's 4.2%. Although inflation surpassed expectations, it is still projected to return to the Bank of England's 2% target.

Therefore, the higher-than-expected UK inflation data and reduced likelihood of BoE rate cuts have supported the GBP, boosting the GBP/USD pair.

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

GBP/USD - Technical Analysis

The GBP/USD pair is currently trading at $1.27099, showing a modest increase of 0.01%. The 4-hour chart highlights critical price levels and technical indicators, offering valuable insights into potential market movements. The pivot point stands at $1.27011, serving as a key reference for traders.

Immediate resistance is noted at $1.27272, with subsequent resistance levels at $1.27476 and $1.27672. These resistance levels will be crucial for the bulls to breach if they aim to push prices higher.

On the downside, immediate support is observed at $1.26747, followed by $1.26457 and $1.26151. These support levels are critical for determining the market's next direction, especially if bearish sentiment prevails.

The Relative Strength Index (RSI) is at 54, indicating neutral market conditions—neither overbought nor oversold. This neutrality suggests that significant market movements could depend on breaking either the support or resistance levels.

Additionally, the 50-day Exponential Moving Average (EMA) stands at $1.26931, providing a dynamic support level that traders often use to gauge market trends.

The technical outlook for GBP/USD suggests cautious optimism. An entry price above $1.27018 could present a buying opportunity, targeting $1.27407, with a stop loss set at $1.26754 to manage risk.

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