The British pound (GBP) has faced headwinds this week, losing its earlier momentum against the US dollar (USD) on the back of lower-than-expected PMI figures from the UK. Both the S&P Global/CIPS Composite PMI and Services PMI came in below forecasts, indicating a potential slowdown in the UK economy. This has dampened investor sentiment towards the pound, especially as concerns linger about the impact of potential tax cuts announced in the upcoming UK Spring Budget.
Meanwhile, the US dollar has found some support this week after a period of weakness. Although weaker than expected, the release of durable goods orders data triggered a cautious market response, leading to a temporary boost for the safe-haven dollar. Additionally, the upcoming release of the Non-Farm Payrolls data on Friday is attracting attention, as strong job creation figures could further strengthen the dollar. Investors will also be closely monitoring the testimony of Federal Reserve Chair Jerome Powell before Congress this week, seeking clues about the future path of US monetary policy.
Technical Analysis
Despite the recent pullback, the GBPUSD remains above key moving averages on the 4-hour chart. The price is currently trading at 1.26817, slightly below the 23.60% Fibonacci retracement level (1.26685). The 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line) are all positioned in an upward trend, suggesting a potential underlying bullish bias. However, the downward-sloping RSI (57.15) indicates a shift in momentum, although it remains comfortably above the 50.00 level.
If the price action finds support at the 23.60% Fibonacci retracement level, a potential short-term buying opportunity could emerge with a target towards the resistance level at 1.27095. A sustained break above this level could confirm bullish momentum, potentially bringing the 1.27428 and 1.27856 resistance levels into play.
Conversely, a sustained push below the 23.60% Fibonacci retracement level could open the door for selling opportunities towards the 38.20% Fibonacci retracement level (1.26431). A break below the 1.25431 level would likely bring the 61.80% Fibonacci retracement level (1.26022) and 78.60% Fibonacci retracement level (1.25730) into play in the short term.
Summary
The GBPUSD price action finds itself in a precarious position, caught between mixed data releases and the upcoming Spring Budget announcement. The Spring Budget, US data releases, and Fed Chair Powell’s testimony will be key events to watch for direction. Technical analysis suggests potential short-term opportunities, with bullish momentum on a break above 1.27095 and cautious downside targets if support falters at 1.26685.
Sources: TradingView, Trading Economics, MT Newswire, Reuters, Dow Jones Newswire, S&P Global.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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