GBP/USD Sellers Defend Short-Term Downtrend Channel as Dollar Strengthens

14/10/2024

Market Overview

On Monday, GBP/USD continued to trade under pressure as the U.S. dollar extended its gains from last week. The dollar saw solid demand during the Asian trading session, supported by a risk-off tone driven by several factors, including geopolitical tensions in the Middle East, disappointing announcements from China, and reduced liquidity due to a public holiday in Japan. These elements increased the dollar’s safe-haven appeal, adding to the bearish outlook for GBP/USD.

The dollar’s sustained strength has put pressure on the pound, particularly as concerns over the U.K.’s economic outlook persist. With key labor market data for the U.K. due on Tuesday, investors are closely watching to see if the data continues to reflect cooling conditions, which could increase pressure on the Bank of England (BoE) to ease interest rates sooner.

Technical Analysis

In the four-hour chart, GBP/USD continues to trade within a well-defined downtrend channel. The pair is currently below the Ichimoku cloud, highlighting continued bearish pressure. The recent recovery in price has brought GBP/USD close to the upper boundary of the downtrend channel, which is located near the 1.30827 resistance level. This dynamic resistance is expected to limit any further upside in the near term.

For the sellers to extend the current downtrend, they must break below the immediate support level at 1.30413 decisively. Such a move would reinforce bearish sentiment and open the path toward lower targets at 1.30242, 1.30157, 1.29999, and ultimately 1.29828. The bearish outlook is further supported by the presence of GBP/USD below the Ichimoku cloud, indicating that sellers still maintain control of the market.

Momentum indicators are mixed, suggesting a neutral market stance. The RSI is currently around the middle of its range, indicating neither overbought nor oversold conditions, while the MACD is also neutral, showing no significant bullish or bearish divergence. Price action below key moving averages further points to continued downward pressure.

Alternative Scenario

Should buyers manage to break above the key resistance at 1.30827, this would indicate a shift in momentum. Such a move could push the price higher, with the next immediate target being the Ichimoku cloud resistance. A decisive break into the cloud would weaken the bearish narrative and could lead to a short-term upward correction.

Key Levels Overview

Resistance Levels:

Resistance 1: 1.30827

Current Price: 1.30595

Support Levels:

Support 1: 1.30413
Support 2: 1.30242
Support 3: 1.30157
Support 4: 1.29999
Support 5: 1.29828

Key Events to Watch

Market participants should keep an eye on upcoming speeches from Federal Reserve officials later on Monday, which may provide additional clarity on the Fed’s future policy direction. Any hawkish tone from Fed officials could strengthen the dollar further, thereby adding pressure on GBP/USD.

In addition, focus will also be on the U.K. labor market data set to be released on Tuesday. If the data reveals further cooling of the labor market, it could add to the argument for BoE rate cuts in the coming months. Such a development would weigh heavily on the pound, further supporting the case for continued weakness in GBP/USD.

Conclusion

GBP/USD remains under pressure as the U.S. dollar continues to attract safe haven flows amid geopolitical tensions and weaker Chinese economic data. The pair is currently trading within a short-term downtrend channel, with sellers defending the key resistance at 1.30827. If sellers manage to break below 1.30413, further downside targets will come into focus, including 1.29828.

However, should buyers regain momentum and successfully break through 1.30827, the pair could face resistance at the Ichimoku cloud, potentially setting the stage for an upward correction. With key Fed speeches and U.K. labor data on the horizon, traders should be prepared for increased volatility, as these events could determine the pair’s next significant move.