GBP/USD Analysis: Investor Sentiment Leaning Towards Selling

The GBP/USD currency pair has recently struggled to maintain upward momentum, with investor sentiment tilting strongly towards selling. Despite a brief rebound to the resistance level of 1.2305, the pair quickly resumed its broader bearish trajectory. The recent moves suggest the pair remains vulnerable to economic releases from both the UK and the US, which could shape the closing sentiment for the week. This article by Revival-X's broker Nikos Papadopoulos, will shed light on the topic through a detailed analysis.

Recent Price Action and Key Levels

Last week, the GBP/USD reached a high of 1.2305 but failed to sustain its gains, retreating to a support level of 1.2186 before settling around 1.2240. This pattern highlights persistent selling pressure, particularly as bulls struggle to capitalize on minor rebounds. Our recommendation to sell GBP/USD at its recent peak proved effective, reinforcing the dominant bearish sentiment in the market.

Technical analysis continues to show that resistance levels at 1.2330, 1.2420, and 1.2500 are critical to watch. On the downside, support at 1.2180 remains a pivotal barrier for bears aiming for further declines.

US Dollar Trends: Inflation's Role in Market Dynamics

The US dollar's recent performance has been heavily influenced by inflation data. Dollar bulls faced challenges following an unexpected slowdown in core US inflation. The core Consumer Price Index (CPI) dropped to 3.2% year-over-year from 3.3%, marking its first decline since July. While this reflects progress in the Federal Reserve's fight against inflation, core inflation minus rents remains elevated.

In December, core consumer price inflation rose to 2.9% year-over-year from 2.7%, aligning with market expectations and supporting speculations about a potential rate cut in June. Despite these developments, the US dollar remains significantly overvalued, trading 25% above its 25-year average.

The US Dollar Index (DXY), which measures the dollar against a basket of currencies, indicates the greenback's current strength is above its fundamental drivers. This divergence creates a risk for the dollar, making it vulnerable to data releases that either meet or fall short of expectations.

Expectations for Federal Reserve Policy

The inflation data influenced broader market behavior, leading to a decline in US Treasury yields, a rise in equity prices, and an increase in bets for a Federal Reserve rate cut by June 2025. Current market pricing anticipates not only a June rate cut but also the potential for a second reduction later in the year.

However, there is limited room for significant monetary easing, given the resilience of the US economy. The strength of economic fundamentals suggests that while the dollar may face some downside, a dramatic sell-off appears unlikely.

GBP/USD Technical Outlook

The daily chart analysis reinforces the bearish outlook for GBP/USD. The pair has consistently struggled to break through key resistance levels, and each rebound remains vulnerable to selling.

• Resistance Levels: The closest resistance zones are identified at 1.2330, 1.2420, and 1.2500.
• Support Levels: Immediate support is seen at 1.2180, with a breach likely to open the door to further declines.
• Technical Indicators: The Relative Strength Index (RSI) and MACD indicators remain bearish, signaling continued downward pressure.

For traders, the current setup favors selling from any upward retracement, aligning with the broader bearish trend.

Economic Data and Market Implications

The next wave of economic releases is likely to play a critical role in shaping GBP/USD movements.

UK Economic Data

The pound is expected to react to the latest readings on British economic growth and industrial production. Weak data could exacerbate bearish momentum for GBP/USD, reinforcing the currency pair's vulnerability.

US Economic Data

The US retail sales figures, weekly jobless claims, and the Philadelphia Fed manufacturing index are key releases to watch. Strong data may bolster the dollar, further pressuring the GBP/USD pair. Conversely, weaker-than-expected results could provide temporary relief for GBP/USD bulls.

Conclusion: Selling Pressure Dominates

The GBP/USD pair remains in a clear downtrend, with selling pressure dominating market sentiment. Investors appear reluctant to support prolonged rallies, particularly amid a challenging macroeconomic backdrop for both the UK and US.

Technical indicators and key levels continue to signal opportunities to sell on any rallies. As market participants digest economic data from both sides of the Atlantic, the GBP/USD pair's ability to break below or sustain above critical support and resistance zones will determine its near-term trajectory.

For now, the bearish narrative remains intact, and traders should approach the pair with a strategy that aligns with selling from resistance levels while closely monitoring upcoming data for potential shifts in momentum.