10.01.202503:49 Forex Analysis & Reviews: GBP/USD Overview: January 10 - Another Day, Another Decline for the British Pound

The GBP/USD currency pair continued its steady decline on Thursday. As noted yesterday, there were no immediate local reasons for the pound's drop on Wednesday. However, from a medium-term perspective and considering the global economic backdrop, there are more than enough reasons for this decline. Throughout 2024, we have consistently highlighted numerous factors that suggested the pound would decrease, especially following its unjustified rise. Such a situation could not last indefinitely, and now, for the fourth consecutive month, we are witnessing the pound's fall.

Yesterday, there were no significant events in either the UK or the US, and the euro traded sideways throughout the day, making it unlikely to have influenced the pound's movement. This decline is occurring because major market players are continuing to offload the British currency. Why wouldn't they? The global factors driving the pound's decline are similar to those impacting the euro. This isn't about Trump's presidency, new geopolitical conflicts, potential trade wars, or even an alien invasion; it's straightforward. Markets aim to price in future events in advance to maximize profits. This forward-looking process defines price forecasting, as opposed to merely explaining movements after they occur. While anyone can rationalize past movements, only a select few can predict them.

The British pound continues its logical decline, and the weekly timeframe indicates that there is still room for further decrease. We do not expect the pound to reach our target of $1.1850 within a few weeks. Instead, the downward movement may be prolonged and challenging. The weekly chart suggests that the pace of decline will not be rapid or abrupt. What can we expect in the long run, considering that the UK economy has been stagnant for two years? The Bank of England is only just beginning to ease monetary policy and is expected to cut rates at least twice as aggressively as the Federal Reserve in 2025. Meanwhile, the market seems to focus primarily on pricing in the Fed's future easing, largely ignoring the BoE's policies.

Currently, we see no factors supporting a rise in the British currency. If Trump initiates trade wars globally, it could further strengthen the dollar. Such actions would likely drive inflation higher in the US, leading the Federal Reserve to adopt a more cautious and gradual approach to rate cuts. Other central banks might follow suit, as inflation in their own countries would also rise. However, the market's primary focus remains on the Fed and its policies. As a result, the dollar could potentially strengthen well beyond the $1.1850 level. For now, we will wait and see, as making radical and long-term forecasts at this stage would be premature.

The average volatility of the GBP/USD currency pair over the past five trading days is 120 pips, which is considered "high." On Friday, January 10, we expect the pair to move within a range between 1.2187 and 1.2427. The higher linear regression channel is currently trending downward, indicating a bearish trend. The CCI has entered the oversold territory once again; however, any oversold condition during a downtrend typically signals just a correction. Additionally, the bullish divergence observed on this indicator suggests a correction has already taken place.

Nearest Support Levels:

• S1 – 1.2207
• S2 – 1.2085
• S3 – 1.1963

Nearest Resistance Levels:

• R1 – 1.2329
• R2 – 1.2451
• R3 – 1.2573

Trading Recommendations:

The GBP/USD currency pair is currently experiencing a bearish trend. We do not recommend taking long positions, as we believe that all factors supporting the appreciation of the British pound have already been factored into the market multiple times, and there are no new catalysts emerging. For those who trade based on purely technical setups, long positions may be considered if the price moves above the moving average line, with targets set at 1.2573 and 1.2695. However, selling orders remain significantly more relevant, with targets of 1.2207 and 1.2187.

Explanation of Illustrations:

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.