The GBP/USD currency pair also began to correct on Thursday, but there were no technical signals preceding the start of this correction. Of course, they were not obligated to appear. Also, it cannot be confidently stated at this moment whether we are dealing with the beginning of a correction or just a simple pullback to the moving average. After all, a rebound from the moving average could occur today, leading to a resumption of the downward trend. Moreover, the macroeconomic backdrop will be significant both in the UK and the US today. This means that the dollar may once again have very concrete reasons to rise.
However, we still believe that the correction will continue today and that the moving average line will be overcome. Three entries of the CCI indicator into the oversold zone speak in favor of this, and these are very strong buy signals. The correction is unlikely to be weak; most likely, we will see a move upwards by 200–300 points. This does not mean that the downward trend will end. We still see no basis for a long-term and strong rise in the British currency. Yes, it has risen quite strongly in the past year (2800 points), but at the same time, it has been unfounded (in the last 5–6 months). But in the past, the rise of the British currency could be attributed to high market expectations of monetary policy tightening in the UK, and now, what can we attribute the pound's rise to if the Bank of England is ready to end the rate hike?
Thus, we, as before, await a new wave of weakening of the American currency no earlier than statements from the Fed about the readiness to begin easing monetary policy. In this matter, everything will depend on inflation in the US. The faster it drops below 3%, the sooner the moment will come when Jerome Powell and company talk about easing. Next year, the American economy is forecast to experience a mild recession, so rates will need to be lowered for this reason as well. If inflation returns to 3% by the end of 2023, then at the beginning of next year, the US dollar may start to decline, as the Bank of England is likely to keep its rate at maximum levels longer than the Fed.
The UK GDP could be a formal reason for the pound's rise. In the upcoming days, the UK is set to release its GDP report, a noteworthy event as it is the sole scheduled report for the week and expected to garner significant attention. This anticipation is due to today marking the third estimate of this crucial economic indicator. The forecast predicts a 0.2% growth in the British economy for the second quarter. This is considered a commendable figure, particularly in light of the Bank of England's recent key rate increase to 5.5%. Consequently, the market may interpret any value exceeding 0.1% as a positive sign for the British currency.
It is worth reiterating that the pound's correction has been looming for the past week, indicating that the market is mentally prepared for an upward movement in the pound's value. Therefore, any formal reason for buying can be used to the fullest. On the other hand, the correction may be short-lived and not very strong. A consolidation period may begin, as the fundamental backdrop has weakened in recent months (the rate hikes of the Fed and the Bank of England are coming to an end). However, after a 1000-point drop, some correction is welcome, so we believe that practically any value of the UK GDP will support the national currency. There is no reason to expect a blatantly negative value.
The average volatility of the GBP/USD pair over the past 5 trading days as of September 29 is 69 points. For the pound/dollar pair, this value is considered "average." As a result, on Friday, September 29, we anticipate movement within the range defined by the levels 1.2154 and 1.2292. A reversal of the Heiken Ashi indicator downward will signal a resumption of the downward trend.
Nearest support levels:
S1 – 1.2207
S2 – 1.2146
S3 – 1.2085
Nearest resistance levels:
R1 – 1.2268
R2 – 1.2329
R3 – 1.2390
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair continues to hover near its local lows but has started a correction. Therefore, at the moment, short positions can be considered with targets at 1.2146 and 1.2085 in case of a price rebound from the moving average. Consideration of long positions can be made only if the price consolidates above the moving average line, with targets at 1.2268 and 1.2292.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are pointing in the same direction, it indicates a strong trend.
Moving average line (settings 20.0, smoothed) – determines short-term trends and the direction in which trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel in which the pair will trade over the next day based on current volatility indicators.
CCI indicator – its entry into the oversold zone (below -250) or the overbought zone (above +250) indicates that a trend reversal in the opposite direction is approaching.
