Technical Analysis

GBP/USD Price Analysis – Nov 20, 2023

By LonghornFX Technical Analysis
Nov 20, 20233 min

Daily Price Outlook

Despite market expectations for the Bank of England to implement interest rate cuts, the GBP/USD currency pair has sustained its upward momentum, hovering near the psychological mark of 1.2500. However, this upward rally can be attributed to the weaker US Dollar, influenced by dovish Federal Reserve expectations and optimism surrounding Chinese stimulus. These factors are undermining the safe-haven status of the dollar and contributing to the strength of the GBP/USD currency pair.

USD Decline Driven by Dovish Fed and Market Expectations for Rate Cuts

It is worth noting that the broad-based US dollar continues to decline due to the expected dovish stance from the Federal Reserve. Hence, this trend is lifting the GBP/USD pair for the second consecutive day. Investors believe the Fed won't tighten its policy further, especially after a softer US CPI report last week.

Meanwhile, the mounting anticipation in the market that the Fed might start rate cuts as early as March 2024 has driven the yield on the 10-year US government bond to a two-month low. Furthermore, the optimism regarding additional stimulus measures from China is exerting some extra pressure on the safe-haven appeal of the US Dollar, offering support to the GBP/USD pair.

Challenges for GBP/USD Momentum Amid BoE Rate Cut Expectations

On the flip side, the upward movements of the GBP/USD pair could be short-lived as the expectations of the Bank of England (BoE) starting rate cuts in the first half of 2024 limiting its gains. It should be noted that the markets are anticipating the BoE to start a rate-cutting cycle from its 15-year peak. This can be witnessed by the futures, which are already indicating a fully priced-in 25 basis points BoE rate cut for August 2024, with another one expected in November 2024. Hence, these indicators suggest that any positive momentum in the GBP/USD pair might be short-lived.

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

GBP/USD - Technical Analysis

The British Pound (GBP/USD) notched a 0.19% rise to $1.24855, capturing the market's modest optimism. The pair's pivot point stands at $1.2570, a pivotal level that may pave the way for a test of the immediate resistance at $1.2682. Ascending the ladder, the subsequent resistance levels at $1.2858 and $1.3029 represent potential targets for bullish ambitions. Conversely, a network of support begins at $1.2400, with further floors at $1.2288 and $1.2112, safeguarding against downward pressures.

The Relative Strength Index (RSI) is teetering on the brink of overbought territory at 69, signaling heightened buying activity that could presage a forthcoming consolidation phase. The MACD's minute crossover above the signal line at 0.00006 against 0.00311 echoes this sentiment, suggesting the presence of upward momentum. Supporting the bullish narrative, the GBP/USD's stance above the 50 EMA of $1.2447 provides a backdrop for potential continuation of the current trend.

The 4-hour chart displays a 'Three White Soldiers' pattern, commonly regarded as a bullish signal, further cementing the case for a continued uptrend. This pattern, in conjunction with the hovering RSI, offers a dual narrative: one of potential continuation and the other cautioning against potential overextension.

The GBP/USD presents a bullish case as long as it sustains levels above $1.24422. Traders are positioned for a potential ascent towards the noted resistances, with the 50 EMA serving as a litmus test for the strength of the ongoing trend.

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