Key Takeaways:
- The GBP/USD is exhibiting a short-term downtrend in the wake of bearish candlestick formations and trading below key moving averages.
- Investors are awaiting the U.S. GDP Q4 2023 data release, with expectations of a 3.3% annual increase, which could impact the currency pair significantly.
- A blend of technical indicators and upcoming fundamental events, including Federal Reserve member speeches, could provide trading opportunities for market participants.
Fundamental Analysis:
The forex market begins the trading session with a mix of anticipation and caution. A weak performance in the Chinese stock market and mixed signals from European index futures set a somber tone for global investors. The U.S. dollar shows signs of strength as market participants brace for the latest economic data from the United States, especially the Q4 GDP figures for 2023, which remain the focal point for investors.
After a subdued session in China and consolidation on Wall Street, European index futures suggest a mixed start. While the economic calendar appears light in the early hours, the latter part of the day will draw investor attention toward the U.S. GDP readings. Initial data on the Q4 GDP for 2023 will be released, followed by several Federal Reserve officials' speeches.
Analysts expect the GDP report to affirm the robust growth of the U.S. economy in the last quarter of 2023, with a consensus forecast of a 3.3% year-over-year increase. The current base scenario priced in by investors assumes a soft landing of the U.S. economy; thus, a solid GDP report would only confirm this trajectory.
Today's Macro-economic Publications:
- The U.S. trade balance for January and various Q4 GDP-related figures are scheduled for release, including GDP Sales, GDP Price Index, Core PCE Prices, Real Consumer Spending, and PCE Prices.
- Speeches from ECB's McCaul, BoE's Mann, Fed's Bostic, Fed's Williams, and RBNZ Governor Orr will also be closely monitored for policy clues that might influence market sentiment.
Technical Analysis:
The GBP/USD pair is facing downward pressure on the 4-hour chart, characterized by a series of bearish engulfing patterns and a shooting star, all of which signal potential continuation of the current bearish trend. The currency pair is trading below the 100-period EMA and the 50-period DEMA, indicating that the bears have the upper hand for now.
The RSI is lingering below the mid-point, which corroborates the bearish sentiment but also indicates that the market is not yet in an oversold state—there could be more room for the downside. Traders should eye the immediate support level at 1.2642 and the resistance levels at 1.2669 and the 100-period EMA for potential price pivots.
- Trend Analysis: The GBP/USD pair appears to be in a short-term downtrend as indicated by the lower highs formed on the chart. There is also a longer-term ascending trend line visible, suggesting that the pair is currently testing a critical support area.
- Candlestick Patterns: The chart shows a series of bearish engulfing patterns, which are strong reversal patterns, particularly when they appear at the top of an uptrend. Additionally, there is a shooting star pattern, which also suggests bearish reversal when it appears after an uptrend.
- Moving Averages: The 50-period Double Exponential Moving Average (DEMA) and the 100-period Exponential Moving Average (EMA) are present on the chart. The price has recently moved below the DEMA, which is a bearish signal, and it is approaching the EMA. How the price reacts to the EMA could determine the immediate trend.
- Indicators:
- Relative Strength Index (RSI): The RSI is currently just below the 50 level at 42.85, which indicates that momentum may be turning more bearish. An RSI below 50 typically indicates that bears have the momentum advantage.
- Support and Resistance Levels: The chart has a clearly marked supply zone, which has acted as resistance in the past. The price is currently below this zone, reinforcing its role as resistance. On the downside, there are likely support levels at the previous lows and the ascending trend line.
- Weekly Pivot Points: While not explicitly marked on the chart, pivot points would offer additional insight into potential support and resistance levels that traders may use for setting stop-loss orders or take-profit levels.
Market Scenarios:
- In a bearish scenario, if the U.S. GDP data exceeds expectations, the dollar could strengthen further, pushing the GBP/USD pair below its current support levels.
- Conversely, in a bullish scenario, weaker-than-expected GDP figures or dovish tones from Fed officials might diminish the dollar's appeal, leading to a potential short-term recovery in the GBP/USD pair.
Conclusion:
In summary, the technical indicators suggest bearish sentiment in the short term, with the potential for the downtrend to continue if the price stays below the supply zone and the moving averages. The presence of bearish candlestick patterns and the RSI's position support this view. However, the approach to the long-term ascending trend line and the 100-period EMA could provide a pivotal moment for the pair, with the potential for a bounce back if these levels hold as support. Traders should watch these key levels closely for signs of either a continued downtrend or a possible reversal if support holds.
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Important Notice
The begginers in forex trading need to be very careful when making decisions about entering the market. Before the release of important reports, it is best to stay out of the market to avoid being caught in sharp market fluctuations due to increased volatility. If you decide to trade during the news release, then always place stop orders to minimize losses.
Without placing stop orders, you can very quickly lose your entire deposit, especially if you do not use money management and trade large volumes. For successful trading, you need to have a clear trading plan and stay focues and disciplined. Spontaneous trading decision based on the current market situation is an inherently losing strategy for a scalper or daytrader.
