Throughout Thursday, the GBP/USD currency pair continued its upward movement. In reality, no conclusions can be drawn from the movement of the British currency. Let's recall that the pair has been essentially trading in a range for over two months, so twists of growth and decline constantly alternate with each other. The main idea remains the same – the British pound is excessively expensive and overbought. It lacks fundamental and macroeconomic support; the state of the U.S. economy is much better than that of the UK. The Federal Reserve's rate is higher than the Bank of England's. When the rate cut by the Bank of England will begin is still unknown to anyone. Certainly not in the near future.
Even technical factors predominantly support the dollar rather than the pound. In the 24-hour timeframe, everything indicates that the upward correction between October 4 and December 28 is complete. But if the market refuses to sell the pound and buy the dollar, what can be done? We assume that market participants are waiting for the Bank of England to move later towards rate cuts. This week, BOE Governor Andrew Bailey stated that this year, rates will undoubtedly start to decrease, but currently, inflation is too high to begin this process. Also, business activity indices were released in the UK yesterday, which the market gladly used for buying the British currency.
Let's be frank: the business activity index values did not suggest an increase in the British currency. In the service sector, the index remained unchanged at 54.3, and in the manufacturing sector, it increased from 47.0 to 47.1 with higher forecasts. Based on what, did the market start buying the pound again? However, this question has remained rhetorical for several months.
Also, it is worth noting that on Wednesday evening, the minutes of the last Fed meeting became known, which, as usual, contained no important information. It was so dull that the market simply ignored it. What did we learn? Members of the Federal Reserve's monetary committee noted that the key rate had reached its maximum. They held the opinion during the meeting that it would be too premature to discuss a rate cut now. The latest GDP report was also mentioned, where the pace of economic growth slowed slightly but remained high.
Some officials noted the risks of inflation slowdown cessation if demand starts to rise again or if the supply "cools" too much. All FOMC representatives stated that they adhere to a cautious approach, and the decision to cut rates should be justified by macroeconomic data.
Thus, we heard only what we had heard dozens of times before. There were no changes in the rhetoric of the monetary committee. The British pound is currently rising, but in the coming days, it may turn back down, which would be logical from any point of view. If it is currently a range, then a new downward movement is, of course, a matter of continuation. If it is currently a downtrend, a new leg down is even more logical. An upward trend cannot be ruled out, but currently, there is no reason to believe that it is happening.
The average volatility of the GBP/USD pair over the last 5 trading days is 69 points. For the pound/dollar pair, this value is considered "average." On Friday, February 23, therefore, we expect movements within the range limited by the levels of 1.2571 and 1.2709. The senior linear regression channel is sideways, which best characterizes the current trend. The CCI indicator entered the oversold zone, so we are now observing another twist of upward movement within the range.
Nearest support levels:
S1 – 1.2634
S2 – 1.2604
S3 – 1.2573
Nearest resistance levels:
R1 – 1.2665
R2 – 1.2695
R3 – 1.2726
Trading recommendations:
The GBP/USD currency pair has exited the sideways channel and may attempt to continue forming a new downtrend, which we have been talking about for a very long time. However, the current movement looks more like a new flat. The pair managed to move down more than 200 points, but essentially, all the decline in the British pound ended there. We expect a resumption of movement to the south, with targets at 1.2543 and 1.2512. Long positions can only be considered with the price above the moving average, targeting 1.2665 and 1.2680, and only with the presence of the corresponding macroeconomic background. Both targets have already been worked out, and if a downtrend has indeed started now, it is obvious that purchases cannot be a priority.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are pointing in the same direction, it means the trend is strong.
The moving average line (settings 20.0, smoothed) – determines the short-term trend and direction in which to trade.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator – its entry into the oversold zone (below -250) or overbought zone (above +250) indicates that a trend reversal in the opposite direction is approaching.
