05.09.202312:22 Forex Analysis & Reviews: Overview of the GBP/USD pair. September 5th. The Bank of England maintains a hawkish tone, but it's hard to be certain

The GBP/USD currency pair also attempted to correct on Monday after the fall on Thursday and Friday. However, it didn't go well either. The article about the euro mentioned that the pair has been moving quite chaotically in recent weeks. This statement is doubly applicable to the British pound. The British currency remained in a clear flat for several weeks, then broke out of the sideways channel, but immediately stopped falling and is now aiming for a new sideways channel. This is very concerning because, according to all types of analysis, the British currency should continue to fall. However, a similar situation has arisen multiple times in the past year, and the pound has continued to rise calmly. Therefore, it is accepted that the market will find some grounds for a new upward trend this time.

In the 24-hour timeframe, the pair has been unable to surpass the Ichimoku cloud confidently. Although the pound's decline has been ongoing for a month and a half, during this time, the British pound has depreciated by 500 points. On the daily chart, this downward movement looks more like a simple pullback than a correction. Therefore, we cannot conclude that the trend has changed to bearish, which would be logical according to any analysis.

On Monday, no important macroeconomic data existed in the UK and the US. In the current week, the only significant report for the GBP/USD pair is the ISM index in the US services sector. It will likely remain above the 50.0 level, so any changes may only be "cosmetic." Market reactions to "cosmetic" changes are usually weak. Thus, this week, there is no need to expect strong movements. Without strong movements, the pair is more likely to enter a new sideways channel than engage in a trending movement.

Central bank meetings begin next week, and surprises are possible. Therefore, the most interesting movements will likely be postponed to the following week.

The Bank of England remains silent as if on interrogation. While the Federal Reserve shows readiness to raise rates once or even twice more, and the ECB is actively signaling an impending pause, it remains very difficult to predict what the Bank of England will do by the end of the year. While central bank officials in the EU and the US regularly make statements, and we can at least approximately understand what decisions they are preparing for, there is nothing of the sort regarding the Bank of England. All statements by its "top officials" say, "Inflation is too high, we continue to work on it, wages are rising too fast, and inflation risks remain high." But what does this mean for traders? Is the Bank of England going to raise rates indefinitely? After all, inflation in the UK objectively remains well above the acceptable range.

Yesterday, it was announced that UK Chancellor of the Exchequer Rishi Sunak delivered a speech. His speech emphasized the need to stick to the plan to reduce inflation. Mr. Sunak noted that the UK government is on track to reduce inflation by half (i.e., to 5%), but at the same time, a new rise in the Consumer Price Index is possible in the autumn. Recall that at present, inflation in the UK stands at 6.8%. Even if it decreases to 5% by the end of the year, how much more time and tightening will be needed to bring it down to 2%?

This could indicate that the Bank of England may need to continue raising the key interest rate, but we need more information from the regulator's insiders. Therefore, we can only guess about preserving the Bank of England's hawkish stance. This may be why the market is cautious about selling the British currency.

The average volatility of the GBP/USD pair over the last five trading days is 99 points. For the pound/dollar pair, this value is considered "average." Therefore, on Tuesday, September 5th, we expect movements within the range bounded by the levels 1.2521 and 1.2719. A reversal of the Heiken Ashi indicator downwards will signal the possible resumption of the downward movement.

Nearest support levels:

S1 – 1.2573

S2 – 1.2512

S3 – 1.2451

Nearest resistance levels:

R1 – 1.2634

R2 – 1.2695

R3 – 1.2756

Trading recommendations:

In the 4-hour timeframe, the GBP/USD pair has fallen below the moving average. Therefore, at this time, it is advisable to consider new short positions with targets at 1.2573 and 1.2521 in case the Heiken Ashi indicator reverses downwards. Long positions can be considered if the price consolidates above the moving average line with targets at 1.2695 and 1.2719.

Explanations for the illustrations:

Linear regression channels - help determine the current trend. If both channels point in the same direction, it indicates a strong trend.

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

Murray levels - target levels for movements and corrections.

Volatility levels (red lines) - the probable price channel in which the pair will move 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.