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The GBP/USD pair recovered on Friday following Thursday's sharp decline. Everything mentioned about the reasons for the euro's drop in the corresponding article applies equally to the British pound. The pound, too, experienced a prolonged rise over two years as the market priced in the Federal Reserve's future monetary policy easing. Then, as the pound became excessively overbought and the Fed delivered its first rate cut, the pair began its decline, which continues to this day. Thus, Thursday's movement simply continued the trend, requiring no additional reasons or justifications. The market already has more than enough.
Interestingly, the British pound and the euro were quite fortunate on Friday. The ISM Manufacturing PMI for the US came in stronger than expected, which could and should have prompted further strengthening of the US dollar. However, the market paused and allowed the battered pound some respite. What does the ISM report tell us? It is yet another data point from the US showing better-than-expected results. Recall that throughout 2024, many analysts and experts repeatedly predicted a recession or significant slowdown for the US economy. None of this materialized. Meanwhile, the UK economy remains mired in stagnation, and given the current stance of the Bank of England, escaping this situation seems highly challenging. From our perspective, no matter how you look at it, the pound is overvalued and should continue to decline in line with the overall downtrend that has persisted for 16 years.
The UK will not offer traders significant events or reports in the upcoming week. The second estimate of the Services and Construction PMI data is unlikely to garner serious interest. In contrast, the US will feature a slew of critical reports, as is typical at the start of each month. These include the ISM Services PMI, JOLTs Job Openings, Nonfarm Payrolls, the unemployment rate, and the University of Michigan Consumer Sentiment Index. And this is just a list of the most critical reports. Additional data will include unemployment claims and the minutes of the latest Federal Reserve meeting. Thus, all market attention will be directed toward the US.
It is easy to predict that positive data regarding the labor market, unemployment, and business activity will lead to further strengthening of the US dollar, which has already been steadily climbing for three months. If the data disappoints significantly, the pound may have an opportunity for a corrective rebound, but it will likely be just that—a correction and nothing more. In the medium term, we expect further declines in the pound, likely reaching the 1.1800 level.
The average volatility of the GBP/USD pair over the last five trading days is 100 pips, which is considered "average" for this currency pair. On Monday, January 6, we expect the pair to trade within a range between 1.2319 and 1.2519. The higher linear regression channel is directed downward, indicating a bearish trend. The CCI indicator has once again entered the oversold area, but any oversold signal during a downtrend is only a signal for a correction. The bullish divergence previously observed with this indicator also pointed to a correction, which has now concluded.
Nearest Support Levels:
Nearest Resistance Levels:
The GBP/USD currency pair is currently experiencing a bearish trend, and it may soon breach the 1.2500 level. We do not recommend taking long positions at this time, as we believe that all factors contributing to the British currency's potential growth have already been accounted for multiple times, and there are no new factors emerging.
For traders who base their decisions solely on technical analysis, long positions could be considered if the price moves above the moving average line, with a target set at 1.2695. However, we find that sell orders are more relevant at this stage, with targets projected at 1.2329 and 1.2319.
Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.
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