Focus Remains on the End of "Upward Impulse Waves"

Summary:

The GBPUSD is facing new selling pressure. According to a survey released on Tuesday, the UK manufacturing industry suffered setbacks in the process of trying to resume growth, with output and employment falling sharply in December compared with the previous month.

BUY GBPUSD

Close Time

CLOSED

1.26343

Entry Price

1.30380

1.24890

1.36357 +0.00079 +0.06%

33.9

Pips

Profit

1.24890

1.26682

Exit Price

1.26343

Entry Price

1.30380

Fundamentals

The final UK Manufacturing PMI came in at 46.2 in December, down from 47.2 in November, marking the 17th consecutive month that the PMI has remained below the neutral 50 threshold, signaling continued contraction. According to S&P Global, key aspects such as output, new orders, and employment are all falling. In addition, business optimism has fallen to a 12-month low.

Rob Dobson, Director of Global Market Intelligence at Standard & Poor's, noted that the demand environment remains challenging, with new orders continuing to fall due to difficult conditions both domestically and in key export markets, particularly the EU.

The economic downturn has prompted enterprises to adopt a more cautious attitude towards costs. As enterprises cope with persistent challenges, the inventory level, procurement, and employment are significantly reduced.

After the weaker-than-expected December Standard & Poor's global manufacturing PMI was released, the GBP faced new selling pressure. Previously, the strength of the GBP came from the fact that the policymakers of the Bank of England (BOE) had not supported interest rate cuts, but the possibility of an economic recession forced them to start discussing interest rate cuts. Given the technical recession facing the UK economy, investors now expect the BOE to cut interest rates from May.

Focus Remains on the End of "Upward Impulse Waves"_1

Technical Analysis

The GBPUSD has been forming an upward structure with higher highs after breaking above a key downtrend line in early November. Although the GBPUSD's uptrend came to a temporary halt at the four-month high level of 1.2826, the golden cross between the 50- and 200-day SMAs is expected to provide upside momentum.

However, during the European session on Tuesday, the GBPUSD fell sharply as the USD rose sharply. There is a death cross downward structure in the 4H timeframe, potentially creating more uncertainty for the GBPUSD in the near term.

Now, we believe that as long as Wave 4 of the "upward impulse waves" structure has not been broken, the end of the "upward impulse waves" is still worth looking forward to.

Given that the short-term oscillators are continuing to provide cautiously positive signals, the bulls may try to eliminate the latest weakness and overcome the December resistance at the 1.2794 level. A break above this resistance could open the door to a four-month peak at 1.2826. If it fails to stay here, the GBPUSD could move towards the June high of 1.2847 until it reaches the 1.2900 level.

On the other hand, if the GBPUSD reverses lower, several previous support levels at 1.2642 and 1.2612 could now become the initial line of defense. A break below that bottom could see the price fall to recent support at 1.2611, or even lower, with upward Wave 4 1.2500 likely to correct.

Overall, risks remain cautiously tilted to the upside in the near term, even though the GBPUSD rally appears to be losing its momentum. The price cannot go below a series of key supports. Otherwise, the uptrend will be reversed. It is recommended to buy the dips.

Trading Recommendations

Trading direction: Long

Entry price: 1.2628

Target price: 1.3038

Stop loss: 1.2489

Deadline: 2024-01-16 23:55:00

Support: 1.2612, 1.2548, 1.2500

Resistance: 1.2772, 1.2818, 1.2887

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