The British Pound finds itself navigating a murky market landscape at the start of 2024. After dipping towards $1.263 following the festive break, GBPUSD faces a tug-of-war between risk aversion and potential upside from dovish signals emanating from the Federal Reserve and Bank of England.
The FOMC meeting minutes are due later on Wednesday, and Friday’s non-farm payrolls report looms large, offering a crucial gauge for Fed policy decisions. Strong jobs data could revive bets for early rate cuts, supporting the Pound, while a weaker report might raise concerns about the US economy and dampen GBP’s appeal.
The Bank of England’s cautious stance on easing rates compared to its global peers could provide some respite for the Pound. This slower pace of policy divergence might widen the yield gap between the US and UK, potentially providing support for the GBPUSD. However, concerns remain about the UK’s sluggish economic growth and continued manufacturing contraction. The recent decline in the Institute of Directors’ Economic Confidence Index adds to the pessimism, raising fears of a potential recession.
Technical
The 4-hour chart shows that the GBPUSD currently hovers around $1.26389, below the 20-SMA (green line), 50-SMA (blue line), and recently breaking below the 100-SMA (orange line). This downward trajectory suggests bearish pressure in the short term.
The downward-sloping 20-SMA is converging with the 50-SMA from the above points towards further downside potential. However, the flat RSI at 38.77 indicates neither clear bullish nor bearish momentum, suggesting a wait-and-see approach is prevalent ahead of the crucial US and UK data releases.
Short-term trading opportunities could exist towards 1.25936, potentially extending to 1.25397 if bearish momentum persists. Weaker US data or hawkish surprises from the Fed could fuel this downturn. A break above the 100-SMA towards the initial resistance at 1.26848 could signal a bullish resurgence, potentially targeting 1.27465. This scenario hinges on positive US data and dovish FOMC minutes.
Summary
The GBPUSD pair faces a tug-of-war between dovish hopes and UK economic woes, helping the currency pair to over 0.8% lower to start the year.
Technical indicators remain indecisive, hinting at potential price consolidation in the near term. A break above 1.2685 could signal a bullish resurgence, potentially targeting 1.2747. Conversely, a breach below 1.2594 might open the door for further declines towards 1.2540.
Sources:TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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