28.09.202310:05 Forex Analysis & Reviews: Overview of the GBP/USD pair on September 28, 2023

The GBP/USD currency pair traded with minimal volatility on Wednesday, just like the three days before, as clearly seen in the illustration below. What are 55-65 points for the British pound? Despite the low volatility, the decline of the British currency continues without pause. Even the Heiken Ashi indicator has stopped reversing upwards, although it's a "fast" indicator and usually reacts to even small pullbacks. But at the moment, there aren't even small pullbacks, so we don't see any purple bars.

Yesterday, there wasn't really any significant reason for the decline of the British currency. There were no interesting events in the UK, and in the United States, there was only a report on orders for durable goods. This report, it must be acknowledged, came out stronger than expected, so it could have triggered a rise in the dollar. However, the dollar is rising strongly every day, even without the help of fundamentals and macroeconomics. So even if this report didn't exist, the US currency would still have risen.

As we have said many times, the reason for the decline of the British currency is simply that this currency had been rising for a whole year, including 5–6 months without significant reasons or grounds. The market had long turned a blind eye to the tightening of US monetary policy but reacted to every rate hike by the Bank of England. Such a one-sided interpretation of the fundamental background couldn't last forever. At a certain point, the super-overbought pound stopped rising, and the market remembered that there was also the dollar, which looked much more attractive. Especially since the Bank of England cannot raise the key interest rate indefinitely while constantly providing support to the pound.

Despite the daily decline, we continue to expect a correction. We recommend tracking its beginning based on the moving average, as the reversal of Heiken Ashi upwards will not indicate the end of the downtrend. Strictly speaking, breaking the moving average won't be a confirmation either, but it's still a stronger signal than the reversal of Heiken Ashi.

Meanwhile, while the dollar is rising, a new episode has started in the United States called "How to Avoid a Shutdown?" Recall that a "shutdown" is the suspension of all government services due to running out of money in the budget. Strictly speaking, there is always money in the budget, and when it runs out, it can always be printed, or Treasury can issue a few hundred billion dollars. However, US legislation does not allow the government to spend more than was originally budgeted. So if the money runs out, it requires the approval of both houses of Congress and the President of the United States to raise the limit or provide additional funding.

Such an episode occurs roughly every year. Each time, the issue is resolved positively (except during Donald Trump's presidency, when he had conflicts with everyone and couldn't agree with anyone) because a "shutdown" is not wanted by either Republicans or Democrats. Therefore, there is no doubt that the issue will be resolved this time as well. Maybe senators and congressmen will be a few days late, but such a delay will certainly not cause significant harm to the US economy.

And most importantly, as we can see, the threat of a "shutdown" has no impact on the US currency. In the past, we have repeatedly seen headlines about the decline of the dollar due to the possible suspension of government services. In reality, these two phenomena are not related to each other in any way. So, the dollar needs to be wary of only technical corrections for now. Its prospects until the end of the year are simply excellent.

The average volatility of the GBP/USD pair over the last 5 trading days as of September 28th is 70 points. For the pound/dollar pair, this value is considered "average." As a result, we anticipate movement on Thursday, September 28th, between the levels of 1.2070 and 1.2210. A reversal of the Heiken Ashi indicator upwards will signal a possible turn in an upward correction.

Nearest support levels:

S1 – 1.2085

Nearest resistance levels:

R1 – 1.2146

R2 – 1.2207

R3 – 1.2268

Trading recommendations:

The GBP/USD pair on the 4-hour timeframe continues to hover near its local lows and updates them every day. Therefore, at this time, it is advisable to stay in short positions with targets at 1.2085 and 1.2070 until the price consolidates above the moving average. Long positions can be considered only after the price consolidates above the moving average with targets at 1.2268 and 1.2329.

Explanations for the illustrations:

Linear regression channels – help determine the current trend. If both are pointing in the same direction, it means the trend is currently strong.

Moving average line (settings 20.0, smoothed) – determines the short-term trend and direction for trading.

Murray levels – target levels for movements and corrections.

Volatility levels (red lines) – the probable price channel in which the pair will trade in the coming day, based on current volatility indicators.

CCI indicator – its entry into the oversold territory (below -250) or overbought territory (above +250) indicates an impending trend reversal in the opposite direction.