12.07.202402:55 Forex Analysis & Reviews: Overview of GBP/USD on July 12. Is the British pound set for a prolonged rise?

GBP/USD extended its gains on Thursday. If it did on Wednesday, when the market had no reasons for buying, it's no surprise that the pair continued to rise after news of U.S. inflation falling below forecasts and reaching last summer's levels. The U.S. consumer price index dropped to 3%, and core inflation fell to 3.3% (also below forecast). Naturally, such figures immediately triggered a new decline in the U.S. dollar. The pair broke through the critical area of 1.2763-1.2893, within which all of the pound's previous attempts to continue rising had ended. Thus, the global technical picture currently looks as if a new global uptrend began on September 26, 2022, and a new phase started on October 4, 2023.

However, even if the Federal Reserve begins to lower rates in September, we must ask the same question as with the EUR/USD pair: what about the Bank of England? Currently, the market is trading as if the Fed has already started lowering rates, and the BoE isn't planning to do so for the next year. In practice, the British central bank might start lowering its borrowing costs in August. And even if we are mistaken and it begins in September, it means that both central banks will start easing policy simultaneously. If both central banks are lowering rates, why should the dollar be the only one that falls?

Let's also consider the economic reports, which have led many experts to prematurely declare that the dollar and the entire U.S. economy are doomed. In the last three months, key reports on GDP, business activity, labor market, and unemployment have disappointed the market. This was partly due to the market's overly optimistic forecasts, but they failed nonetheless. However, we should also pay attention to British data, which have slightly improved in recent months but overall remain in a rather dire state. Why should the pound rise on weak but improving data, while the dollar falls on strong but slightly weaker data?

And we're not even talking about inflation. If inflation in the UK is 2%, and in the US it's 3%, which of the central banks is closer to easing monetary policy? So why is the pound rising again? Why didn't the pound sterling decline when the report on UK inflation, which fell to the BoE's target level, was published? Should we just ignore British data altogether? In that case, should we also ignore U.S. data and only consider technical factors? In general, in our opinion, the British pound may continue to rise simply because this is the forex market, and you can never be 100% sure of any forecast. Major players and market makers can buy or sell entirely independently of fundamentals or macroeconomics. This often leads to movements that are hard to describe and explain even in hindsight.

The average volatility of GBP/USD over the last five trading days is 47 pips. This is considered a low value for the pair. Today, we expect GBP/USD to move within a range bounded by the levels of 1.2861 and 1.2955. The higher linear regression channel is pointing upwards, which suggests that the upward trend will continue. Last week, the CCI indicator entered the overbought area and drew divergence from the last two highs, indicating an impending decline.

Nearest support levels:

S1 - 1.2878

S2 - 1.2817

S3 - 1.2756

Nearest resistance levels:

R1 - 1.2939

R2 - 1.3000

R3 - 1.3062

Trading Recommendations:

The GBP/USD pair continues to rise rapidly, ignoring all factors in favor of the dollar. Although the U.S. released quite a number of disappointing data last week, we believe that this isn't enough for the pound to sustain its growth. We don't see how the pound would be able to rise above the level of 1.2817. Another batch of weak U.S. data has undermined the dollar once again, and in addition to that the fundamental background, the policy of the Fed and the BoE no longer carry significant weight for the market. Therefore, we cannot say that long positions are the obvious choice at this time. However, from a technical standpoint, long positions remain valid, and the pound is appreciating almost every day.

Explanation of Illustrations:

• Linear Regression Channels – Helps determine the current trend. If both are directed in the same direction, it means the trend is currently strong.
• Moving Average Line (settings 20.0, smoothed) – Determines the short-term trend and the direction in which trading should currently be conducted.
• Murray 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 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 imminent.