12.04.202308:09 Forex Analysis & Reviews: GBP/USD. Overview for April 12. US inflation, what to expect from the market this time?

The currency pair GBP/USD on Tuesday repeated all the movements of the EUR/USD pair. After the price consolidated below the moving average line again, it could not continue moving downward. The situation is simply identical to that of the euro. The pound sterling desperately does not want to decline, although there are practically no grounds for continuing growth after 700 points upward without corrections. But we again face a situation in which the pound sterling should fall according to all indicators but does not do so. It is difficult to say whether the upward movement will continue because the British currency is overbought, just like the European one. The situation is practically deadlocked. The market does not want to sell, but purchases are dangerous due to the overbought nature of the pair. Sales have many reasons, but the market does not open short positions, so the pair does not decrease. In the current circumstances, the same advice as for the euro/dollar will be appropriate: trade on the youngest timeframes, where intraday trends can be caught. Attention should also be paid to the older timeframes, where there are at least small chances of forming signals.

For example, we still believe the sideways channel cannot be considered irrelevant. The pair has consolidated above it by only a few dozen points, which is very little for a daily timeframe. Therefore, we still admit that the price may drop again to the channel's lower boundary at the level of 1.1840. But again, if the market refuses to sell or even fix a profit on long positions, there will be no decline.

A chance for the dollar.

This week, we see only one report with at least a theoretical chance to change the market sentiment. Today, the United States will publish an inflation report for March, and according to forecasts, the indicator may slow down to 5.2–5.3%. This would mean an even greater decline in the likelihood of new monetary policy tightening by the Fed in 2023. And the decrease in the probability of a rate hike may provoke a new round of decline in the US currency. But only some things are so simple. The core indicator is of particular importance for the Fed (as well as for other central banks). It is also okay in the US because it decreases slightly occasionally. For example, it has decreased from 6.6% to 5.5% over the past five months. However, the core indicator, which does not consider changes in food and energy prices, is a headache for the Fed. As a result of March, it may start to grow again or, at least, not decrease. And in this case, the likelihood of new rate hikes by the Fed will remain high. We fully admit that the Fed may go for another 2-3 hikes this year. And the main question now is how the market interprets both indicators. If it pays more attention to the main indicator, the dollar may fall (if the indicator itself meets the forecasts). The dollar may grow if more attention is paid to core inflation (and it does not decrease in March). However, yesterday's report hints to us that the market is more interested in the main inflation and expects its powerful decline.

The rate factor is beginning to lose traders' attention a little. All central banks are approaching the end of the monetary policy tightening cycle, so now we are talking about a maximum of 2-3 rate hikes by the Fed and the Bank of England. Secondly, the correlation between inflation and rates is starting to decrease because, no matter how high inflation is, central banks cannot raise rates forever. This concerns the Bank of England, whose inflation is still above 10%. Thus, the pound should not have a significant advantage over the dollar in the near future due to this factor. Especially after a 700-point rise. But the market has its logic now.

The average volatility of the GBP/USD pair over the last five trading days is 80 points. For the pound/dollar pair, this value is "medium." On Wednesday, April 12, we thus expect movement within the channel, limited by levels 1.2340 and 1.2500. The reversal of the Heiken Ashi indicator downwards will signal a new round of downward movement.

Nearest support levels:

S1 – 1.2390

S2 – 1.2360

S3 – 1.2329

Nearest resistance levels:

R1 – 1.2451

R2 – 1.2482

R3 – 1.2512

Trading recommendations:

The GBP/USD pair in the 4-hour timeframe has consolidated back above the moving average. You can stay in long positions with targets at 1.2482 and 1.2500 until the Heiken Ashi indicator reverses downward. Short positions can be considered if the price consolidates below the moving average, with targets at 1.2360 and 1.2340.

Explanations for the illustrations:

Linear regression channels – help determine the current trend. If both are directed in one direction, the trend is strong now.

Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.

Murrey 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 the current volatility indicators.

CCI indicator – its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.