The British Pound (GBP) is finding little direction after the UK met GDP growth expectations of 0.2% in January. This positive data point is overshadowed by weaker Industrial and Manufacturing Production figures, hinting at an uninspiring economic recovery. The Pound is further pressured by a hotter-than-anticipated US CPI print, potentially delaying the Federal Reserve’s first rate cut until later in 2024.
However, the GBPUSD remains underpinned by expectations that the Bank of England (BoE) might maintain higher interest rates for longer compared to the Fed. This divergence in monetary policy could offer some support to the Pound in the near term. Market sentiment remains cautious as traders weigh the implications of mixed economic data and central bank policy decisions.
Technical Analysis
The 4-hour chart shows that the GBPUSD is currently trading at 1.27950, attempting to break a two-day losing streak. The price action recently dipped below the 20-SMA (green line) but remains supported by the 50-SMA (blue line) and the 100-SMA (orange line). The upward slope of the 50-SMA suggests a potential underlying bullish trend. The RSI (52.24) trades flat, slightly above the 50.00 level.
Therefore, short-term trading opportunities could exist towards the resistance level at 1.28935 should the price action sustain a break above the 23.60% Fibonacci retracement level. A sustained break above the initial resistance could confirm the bullish momentum, likely bringing the 1.29467 resistance level into play.
Conversely, short-term trading opportunities could arise towards the support at the 38.20% Fibonacci retracement level (1.27569) should bears sustain a push lower. A break below the 1.27569 level would likely bring the 50.00% Fibonacci retracement level (1.27147) and 61.80% Fibonacci retracement level (1.26724) into play in the short term.
Summary
The GBPUSD trading outlook is framed by a complex array of economic data, policy expectations, and technical signals. While the UK’s economic recovery provides a foundation for currency stability, prevailing market sentiments and global economic indicators introduce a layer of unpredictability. Upward momentum could be triggered by a sustained break above the 23.60% Fibonacci retracement level (1.28935), potentially targeting 1.29467. Conversely, a decline below the 38.20% Fibonacci retracement level (1.27569) could open doors for short-term selling towards 1.27147 and 1.26724.
Sources: TradingView, Trading Economics, Office for National Statistics, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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