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GBP/USD Forecast: A Quick Technical Case for a Near-Term Dip

By :   Matt Weller CFA, CMT , Head of Market Research
September 25, 2024 4:50 PM

GBP/USD Key Points

  • GBP/USD has surged on the back of strong UK economic data and the BOE’s interest rate eclipsing the Fed’s.
  • The pair is forming a Dark Cloud Cover pattern at resistance while…
  • …two different momentum oscillators are signaling declining buying pressure, opening the door for a near-term pullback.

GBP/USD has been on an absolute tear of late, with the British pound clocking in as the best performing major currency over the last month. Fundamentally speaking, a continuation of better-than-expected economic data out of the UK has allowed the Bank of England to leave interest rates unchanged at 5% at each of its last two meetings; combined with the Fed’s aggressive 50bps rate cut last week, the Bank of England now offers the highest interest rate in the developed world.

However, any time a market storyline seems too obvious, it’s at risk of being discounted into the current price, and as I’ll outline in the technical section below, GBP/USD may be at that precipice, at least in the near term.

British Pound Technical Analysis – GBP/USD Daily Chart

Source: TradingView, StoneX

Technically speaking, GBP/USD remains in an established uptrend above its upward-trending 50-day EMA, so it’s not the place to get aggressively bearish over a medium- to longer-term perspective.

That said, today’s price action should at least raise a yellow flag for bulls: The pair is currently carving out a “dark cloud cover” candlestick formation, showing a possible shift from buying to selling pressure and higher odds of a near-term top forming.

At the same time, we’re seeing other signs that the momentum may be fading from two different oscillators. Both the 14-day RSI and the 50-Day Disparity Index (which measures the difference between price and its 50-day MA) are showing bearish divergences at this week’s highs. In other words, while price has set a new cycle high, two different measures of the underlying buying momentum in the market are showing less momentum than at the August highs.

In summary, the combination of a bearish candlestick formation and momentum divergences could hint at a near-term pullback toward the 1.31-1.32 range in GBP/USD. Keeping in mind alternative scenarios, a break above today’s high near 1.3420 would suggest that the bullish momentum has returned and prices could extend their uptrend toward 1.35+ next.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX

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