Technical Analysis of GBPUSD – Range Play

American dollar

• The Fed left interest rates unchanged as expected at the last meeting with a shift in statement signaling the end of the tightening cycle.
• The Summary of Economic Outlook showed a downward revision to growth and core personal consumption expenditures in 2024 while the unemployment rate remained unchanged. Furthermore, the Dot Plot has been revised to show three interest rate cuts in 2024 compared to just two in the latest forecast.
• Fed Chairman Powell did not oppose aggressive pricing and even said they are focused on not making the mistake of keeping interest rates high for too long.
• The latest US CPI beat expectations slightly but analysts expect core CPI to hit 0.2% monthly again after the CPI data.
• The labor market continues to decline although initial claims are still hovering around cycle lows while continuing claims are stuck at a higher level.
• The latest ISM Manufacturing PMI beat expectations, while the ISM Services PMI missed by a wide margin.
• Hawkish Fed members have been leaning toward a more neutral side recently.
• The market expects the Fed to start cutting interest rates in the first quarter of 2024.

GBP

• The Bank of England left interest rates unchanged as expected at the last meeting without dovish language as it reiterated it would keep interest rates high long enough to return to the 2% target.
• Governor Bailey disputed the interest rate cut expectations as he said they cannot determine if interest rates have peaked.
• The latest employment report came in below expectations with much lower-than-expected wage growth and job losses in November.
• The UK CPI came in below expectations across the board, another welcome development for the Bank of England.
• UK PMIs showed the manufacturing sector further contracting while the services sector continues to expand.
• Recent UK retail sales fell short of expectations across the board by a large margin as consumer spending remained weak.
• The market expects the Bank of England to start cutting interest rates in the second quarter of 2024

Technical Analysis of GBPUSD – Daily Time Frame

On the daily chart, we can see that GBPUSD continues to consolidate around the highs as there is not much policy divergence between the two central banks now given that the market expects both of them to start cutting interest rates soon. Sellers are likely to step in around the 1.28 handle to enable a drop to the recent support level around the 1.26 handle where range-bound price action is likely to continue.

Technical analysis of GBPUSD – 4-hour time frame

On the 4-hour chart, we can closely see the range between the 1.26 support and 1.28 resistance. The best strategy is generally to sit and wait for a breakout supported by a fundamental catalyst, but one can also “play the range” by selling at resistance and buying at support.

Technical analysis of GBPUSD – 1 hour time frame

On the 1-hour chart, we can see that the price movement has been quite choppy and erratic. There are no clear levels to rely on except for the resistance area around the 1.28 handle and the support area around the 1.26 level. We have UK GDP data in a few minutes but whatever the data comes out, the pair will likely reject resistance as it will not be enough to change the big picture.

Upcoming events

The only notable events on the agenda today are the UK GDP data and the US PPI data.