The GBPUSD currency pair experienced a rebound from the 1.2518 level as market participants reacted to a mix of economic data releases from the United Kingdom and the United States, respectively. The total value of goods and services produced in the UK contracted for two consecutive quarters, leading to discussions of a potential economic recession. In contrast, the advance estimates of the US Retail and Food Services Sales for January 2024 were $700.3 billion, down 0.8 percent from the previous month. The sales figure, excluding automobile sales, indicated a decline of 0.6%, significantly lower than the expected 0.2% rise.
The Pound Sterling is technically following a declining trend. However, the rate of deceleration is insufficient to drive it towards further depreciation as it stands.
Traders will closely monitor the currency pair today due to significant economic data releases and their potential impact on currency valuations.
Overview
The GBPUSD currency pair experienced a rebound from the 1.2518 level as market participants reacted to a mix of economic data releases from the United Kingdom and the United States, respectively. The total value of goods and services produced in the UK contracted for two consecutive quarters, leading to discussions of a potential economic recession. In contrast, the advance estimates of the US Retail and Food Services Sales for January 2024 were $700.3 billion, down 0.8 percent from the previous month. The sales figure, excluding automobile sales, indicated a decline of 0.6%, significantly lower than the expected 0.2% rise.
The Pound Sterling is technically following a declining trend. However, the rate of deceleration is insufficient to drive it towards further depreciation as it stands.
Traders will closely monitor the currency pair today due to significant economic data releases and their potential impact on currency valuations.
Upcoming Economic Events
Friday 13:30 (GMT): Producer Price Index
Friday 15:00 (GMT): Preliminary UoM Consumer Sentiment
Fundamentals
According to the latest data earlier this week, the UK Consumer Price Index(CPI) witnessed a year-on-year increase of 4% in January, slightly lower than the market consensus of 4.1%. This indicates that the cost of goods and services in the UK has gone up, albeit at a slower pace than expected. On a monthly basis, CPI fell by 0.6% in January 2024, the same rate as in January 2023.
The Consumer Prices Index, including owner occupiers' housing costs (CPIH), rose by 4.2% in the 12 months to January 2024, the same rate as in December 2023.
On a monthly basis, CPIH fell by 0.4% in January 2024, the same rate as in January 2023.
The Consumer Prices Index, which includes owner-occupiers' housing costs (CPIH), is widely regarded as a leading measure of inflation. While CPI and CPIH are otherwise identical, the latter is considered the most comprehensive measure, as it incorporates costs related to owning, maintaining, and residing in one's property, referred to as owner-occupiers' housing costs (OOH), as well as Council Tax.
The Q4 2023 first quarterly estimate of gross domestic product (GDP) revealed a 0.3% decline compared to Q3 2023, with services, production, and construction sectors experiencing a dip. The UK economy has now decreased for two consecutive quarters across 2023, fueling rumors of recession. The monthly GDP fell by 0.1% in December 2023, and the November 2023 growth rate of 0.2% was revised downwards from the previously reported 0.3%. The October 2023 decline of 0.5% was also revised downwards from a 0.3% decline.
Technical Analysis
The Pound Sterling has been in a downtrend since January 17, when the price breached the neckline of the Head and Shoulders reversal chart pattern, running through the troughs of 1.26118 and 1.26095, respectively.
At a closer look, one can notice the formation of successively lower peaks and lower troughs, hence a downtrend. The 50-period Moving Average and the Momentum Oscillator are also in agreement with the downward outlook. More specifically, prices are trading below the Moving Average line, hinting at a bearish bias. Moreover, the Momentum Oscillator fell below its 100 baseline, indicating a downtrend. Should the bears maintain control of the market, then four potential price targets may be estimated.
Potential Downside Targets
1.25181: The first price objective stands at 1.25181, aligning with the most current trough formed on February 5.
1.25077: The second price objective is estimated at 1.25077, representing the 161.8% Fibonacci extension linked to the trough at 1.26095 (neckline) and the peak of the right shoulder at 1.27856.
1.24713: An additional potential support level could be calculated at 1.24713 using the weekly Pivot Point Standard calculation method.
1.24284: The fourth price target is seen at 1.24284, representing the peak formed on November 6 of last year.
Conclusion and Considerations
The GBPUSD has been following a downward trajectory, forming successively lower peaks and lower troughs but lacking the momentum to accelerate to lower exchange rates amid a plethora of important economic releases. Once the dust settles, the cable will potentially follow its course as a confluence of signals supports the downward outlook. Additionally, staying informed about economic events and geopolitical developments will be essential in making informed trading decisions in the GBPUSD market.