The GBP/USD currency pair on Wednesday also exhibited outstanding growth on the same results of the Fed meeting, which were predicted to prompt the strengthening of the US dollar. Nevertheless, it is worth noting that the pound surged stronger than the euro. And on Thursday, it fell less than the euro currency. Again and again, we are faced with this phenomenon when the pound becomes cheaper less readily yet rises more confidently than the euro currency. However, as we have often noted, this occurrence is explained. After all, the Bank of England has already raised its benchmark rate five times in a row, which market participants obviously cannot overlook.
Nevertheless, if we adopt a medium-term perspective, the pound and the euro are still getting cheaper against the US dollar. We have already talked about a million times due to the same two key variables.
Geopolitics and the "foundation."
The geopolitical situation remains severe in Eastern Europe because there is no sign of the conclusion of the armed battle yet. On the contrary, the Ukrainian Armed Forces have launched a counteroffensive, and the supply of Western weapons into Ukraine does not cease. Therefore, the military confrontation is only in full swing, and the sanctions of the EU countries, including the UK, can damage Russia and have the opposite impact. The foundation also continues not in favor of the British pound, as the Bank of England has raised the rate to 1.25 percent, and the Fed has already lifted it to 2.5 percent. Therefore, the investment environment in America remains far more appealing. But still, the Bank of England is not sitting on the fence like the ECB, so the pound is weakening at a slower pace. Nevertheless, we believe that the euro and the pound will still severely decrease in 2022.
Jerome Powell has an aggressive personality.
Since an event occurred on Wednesday evening, with traders waiting for at least a week, we will only talk about it today. We have already indicated that you must wait at least a day to understand how traders will react. As you can see, the euro currency fell the next day, while the pound still held a weak upward mood. However, in addition to the decision on the rate, there was also a news conference with Jerome Powell, who was still "moderately combative." What does it mean? First, Powell emphasized that he sees no indicators of a recession in the American economy. He pointed out that the labor market is quite solid and unemployment remains at the lowest level in half a century. Second, Powell noted that the main goal of the Fed is to continue to achieve price stability by 2 percent, and the regulator will achieve this goal at any cost. He said that, if necessary, the rate would be raised more aggressively, but in July, it was unnecessary. The head of the Fed believes that after the Fed raised the rate twice by 0.75 percent, we need to wait for the next inflation data to see the reaction of this signal. However, Powell did not express a word that two rises of 0.75 percent are enough, and now the Fed will tighten monetary policy more carefully. Therefore, there is simply no basis for assuming that the findings of the meeting are "dovish."
As for the forthcoming meeting of the Bank of England. On it, the British regulator may hike the rate by 0.5 percent, which will not shock the market but will come as a surprise. And it is quite conceivable that the British pound is increasing, as if keeping in mind that next week the Central Bank of Great Britain will hike the rate for the sixth time in a row. As previously stated, even under this scenario, the Bank of England will be well behind the Federal Reserve, giving the dollar an advantage over the British pound. Since the pair should adjust periodically and the pound has fewer reasons to decline than the euro, we are currently observing a deeper correction. However, if you switch to a 24-hour TF, it becomes instantly apparent that it is extremely challenging to describe the present correction as "deep." We believe the pound sterling will resume its slump and update its two-year lows at least once.
131 points is the average volatility of the GBP/USD pair over the last five trading days. This value for the pound/dollar combination is "high." Therefore, on Friday, July 29, we anticipate movement inside the channel, constrained by the levels of 1.1989 and 1.2151. The downward reversion of the Heiken Ashi signals a round of corrective movement.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
The GBP/USD pair remains positioned above the 4-hour moving average, indicating a favorable trading opportunity. You should thus maintain purchase orders with targets of 1.2207 and 1.2268 until the Heiken Ashi indicator reverses direction. When the price anchors below the moving average line, sell orders should be opened with targets at 1.1963 and 1.1908.
Explanations for the figures:
Channels of linear regression – aid in determining the present trend. If both are moving in the same direction, the trend is now strong.
Moving average line (settings 20.0, smoothed) – determines the current short-term trend and trading direction.
Murray levels serve as movement and correction targets.
Volatility levels (red lines) represent the expected price channel that the pair will trade within over the next trading day, based on the current volatility indicators.
The CCI indicator – its entry into the oversold area (below -250) or the overbought area (above +250) indicates that a trend reversal is imminent.
