Technical Analysis

GBP/USD Price Analysis – May 27, 2024

By LonghornFX Technical Analysis
May 27, 20243 min

Daily Price Outlook

During the European trading session, the GBP/USD currency pair maintained its upward trend, edging higher around the 1.2746 level and hitting an intra-day high of 1.2748. This upward trend can be attributed to the risk-on sentiment, which undermined the US dollar and contributed to gains in the GBP/USD pair.

Despite diminishing expectations for Federal Reserve interest rate cuts and previously released strong US economic data, the US dollar lost traction. Additionally, the GBP/USD pair was boosted by a moderation in the UK's annual inflation rate, which is edging closer to the Bank of England's target.

Looking ahead, the UK and US markets will be closed on Monday for bank holidays. Traders will focus on speeches from Federal Reserve officials Michelle Bowman, Loretta Mester, and Neel Kashkari on Tuesday.

Strong US Economic Data and Fed's Cautious Stance Weaken USD, Boosting GBPUSD Pair

On the US front, recent strong economic data and cautious remarks from Federal Reserve officials have lowered the chances of interest rate cuts. The financial market now expects only one rate cut by year-end instead of several. This change has led investors to adjust their strategies, affecting various assets.

The healthier economy suggests the Fed might keep interest rates higher for longer to manage inflation. According to the CME FedWatch Tool, the probability of a 25 basis-point rate cut in September has dropped to 44.9%, down from 49.0% a week earlier.

On the data front, the University of Michigan's 5-year Consumer Inflation Expectations for May eased slightly to 3.0%, below the expected 3.1%. Despite an upward revision of the Consumer Sentiment Index to 69.1 from a preliminary 67.4, it still hit a six-month low.

These numbers likely boosted investors' confidence in potential rate cuts by the Federal Reserve. Consequently, the US dollar weakened, supporting the GBP/USD pair.

Weak Retail Sales, Improved Consumer Confidence, and Moderated Inflation Boost GBP, Strengthening GBPUSD Pair

On the UK front, traders are reacting to worse-than-expected Retail Sales data for April, which fell by 2.3% monthly and 2.7% annually, exceeding expectations. GfK Consumer Confidence improved slightly to -17 in May, better than the expected -18. Additionally, the UK's annual inflation rate is nearing the Bank of England's 2% target.

This moderation in inflation has reduced expectations for a rate cut in June, which could support the Pound Sterling (GBP).

Therefore, the weak UK retail sales data and improved consumer confidence, combined with moderated inflation-reducing rate cut expectations, support the Pound Sterling (GBP), strengthening the GBPUSD pair.

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

GBP/USD - Technical Analysis

GBP/USD is trading at $1.27412, up 0.03% in the latest session, reflecting modest gains amid cautious market sentiment. The pivot point at $1.2750 is a crucial level to watch for potential market direction.

Immediate resistance levels are located at $1.2773, $1.2803, and $1.2828, suggesting possible hurdles if the price attempts to move higher. Conversely, immediate support is identified at $1.2714, with further supports at $1.2685 and $1.2648, providing a safety net on the downside.

The Relative Strength Index (RSI) is currently at 62, indicating that the currency pair is approaching overbought territory. This could signal a potential pullback if selling pressure increases.

The 50-day Exponential Moving Average (EMA) is positioned at $1.2699, with the current price trading just above this level, hinting at a short-term bullish trend.

Given the technical setup, a recommended strategy would be to sell below $1.27488, with a take profit target set at $1.27043 and a stop loss at $1.27734.

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