On Wednesday, GBP/USD mostly tarded above the MA but then plunged below it. The euro moved in a similar manner. In the past several months, the technical pictures of both currency pairs on the charts have been almost alike. This is a very important factor to consider. Right now, the greenback, demand and supply for it, and factors related to it are of great importance to the market. At the same time, the market pays practically no attention to macro reports that come from the UK and the eurozone. On Tuesday, the eurozone saw inflation missing economists' forecast. As a result, the euro edged down. At the same time, the pound fell without any inflation report. It remains to be seen for how long the pair is going to move like that. Geopolitical factors primarily affect demand and supply for the dollar. Meanwhile, fundamentals provide support for the currency. The reports that now come from the UK and the EU can hardly persuade traders to build a new uptrend. Therefore, from the fundamental point of view, the pound's 400 pips increase in the past 3 weeks seems to be just a correction. This means that the general trend is still bearish.

Further rate hikes might push the British economy into a recession.

The EU is now facing certain challenges, including possible energy and food crises, sanctions against Russia that hit the European economy, and the dovish ECB. Likewise, the UK is dealing with its own issues. One of these is, of course, inflation. Indeed, inflation is still on the rise despite 4 rate hikes by the Bank of England. At the same time, the pound is still bearish. In other words, neither inflation nor the market showed any reaction to the rate increase to 1%. The BoE is now at crossroads, as further rate hikes might push the British economy into a recession. And what is the point in lifting the interest rate if inflation keeps soaring? But if the rate is not raised, inflation will definitely continue to grow. In such a case, the government might come under harsh criticism from British households, and nobody wants that. So, it remains to be seen how the regulator will solve this problem.

Clearly, external factors affect the consumer price index, but no one can say how strong this influence is. In fact, the central banks can be responsible for high inflation. For the years, they have been pumping trillions of dollars, euros, and pounds into their economies. Of course, such measures were necessary due to the pandemic. So, it is now time to bear the brunt of such decisions. At the same time, the regulators have no influence on global supply chain issues, the new outbreak of the pandemic in China, geopolitical developments in Ukraine, or anti-Russian sanctions. It turns out that right now, the efforts of the central banks are practically useless. Therefore, the BoE might potentially pause with further rate increases. Meanwhile, the ECB did not have any intention to lift rates in June whatsoever. In this light, the greenback has more growth potential than the pound or the euro.

On June 2, the 5-day volatility of GBP/USD totals 89 pips. For GBP/USD, it is an average value. Today, the pound/dollar pair is expected to move in the range between 1.2381 and 1.2560. Heiken Ashi's upward reversal is likely to indicate a bullish correction.

Support:

S1 – 1.2451

S2 – 1.2390

S3 – 1.2329

Resistance:

R1 – 1.2512

R2 – 1.2573

R3 – 1.2634

Outlook:

GBP/USD consolidated below the MA in the H4 time frame. So, long positions could be held with targets at 1.2390 and 1.2329 until Heiken Ashi's upward reversal. New long positions could be considered after consolidation above the MA with targets at 1.2634 and 1.2695.

Indicators on charts:

Linear Regression Channels help identify the current trend. If both channels move in the same direction, a trend is strong.

Moving Average (20-day, smoothed) defines the short-term and current trends.

Murray levels are target levels for trends and corrections.

Volatility levels (red lines) reflect a possible price channel the pair is likely to trade in within the day based on the current volatility indicators.

CCI indicator. When the indicator is in the oversold zone (below 250) or in the overbought area (above 250), it means that a trend reversal is likely to occur soon.