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The GBP/USD currency pair rose most of the past day and broke its previous local peak. If, on Tuesday, there were valid reasons for trading with an upward trend, then on Wednesday, there were none. The morning British statistics turned out to be quite "neutral" and certainly did not contribute to the growth of the British currency. However, the pound started to rise from the morning, and even before the American trading session, it rose by another 75 points.
It should be noted immediately that in this article, as tradition dictates, we will not consider the results of the Federal Reserve meeting. After all, what matters to us is not the results but the market's reaction to them. Since the results are announced late in the evening, for example, the European market has yet to have the opportunity to react to them. The same goes for the Asian market. Therefore, it is appropriate to conclude by mid-Thursday. Moreover, there may not be a market reaction at all, and one should also be prepared for such an outcome. The fact is that the Fed is approaching the peak interest rate. It doesn't matter whether the Federal Reserve raises the rate in June or July; the end is near. We have repeatedly said in recent months that a slowdown in tightening pace to a minimum means we should expect three more 0.25% rate hikes. The Fed has raised the rate three times by 0.25%. Thus, with high probability, we saw the last tightening in May.
Certainly, it is always necessary to leave room for alternative scenarios. For example, if inflation suddenly stops falling sharply, the regulator may decide on another additional tightening. But, as the inflation report for May showed, prices continue to slow down at a good pace. Why raise the rate when it is not required? Before the July meeting, we will receive at least one more inflation report. If it also indicates a significant slowdown, the Fed will stop at 5.25%.
The Producer Price Index continues to decline
We do not consider the Producer Price Index an important indicator, and yesterday clearly showed us that the market does not take it into account: the pound strengthened from the morning, and the euro currency also did not change with the publication of this report. Nevertheless, it is worth noting that the annualized Producer Price Index in May slowed down to 1.1% from 2.3%. If producer prices slow down, regular prices slow down as well. Of course, this indicator does not consider wage growth or prices for services or energy carriers. Nevertheless, it reflects what the Fed needs now - a slowdown. Thus, we still believe there will be no further rate hikes in the United States.
Gradually, we are approaching the moment when the Bank of England will announce the results of its meeting. This will happen next week on Thursday. At the 4% level, the British regulator slowed the tightening pace to a minimum and has since raised the rate twice by 0.25%. Therefore, with a high degree of probability, we will see the last tightening performed by the Bank of England next week. If this is the case, then traders and the market have already considered this decision in the current GBP/USD exchange rate. And this means no special reasons for the British pound to rise.
Nevertheless, we are witnessing another rise in the British pound. In the past 3-4 months, we have already become accustomed to the fact that the pound is constantly rising and is a leader among the major currencies. We are not the only ones asking why the pound is rising, but the market cannot be ordered. If it buys the pound, then this currency rises, and you can do nothing about it. From a technical point of view, the pair remains above the moving average line on the 4-hour timeframe, and on the daily chart, it is again above all the lines of the Ichimoku indicator. Therefore, the technical picture indicates further growth, which could be more logical from a fundamental or macroeconomic point of view.
The average volatility of the GBP/USD pair for the past five trading days is 99 points. For the GBP/USD pair, this value is considered "average." Therefore, on Thursday, June 15th, we expect movement within the channel bounded by the levels of 1.2588 and 1.2786. A reversal of the Heiken Ashi indicator downwards will signal a corrective movement.
Nearest support levels:
S1 - 1.2634
S2 - 1.2573
S3 - 1.2512
Nearest resistance levels:
R1 - 1.2695
R2 - 1.2756
R3 - 1.2817
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair continues to stay above the moving average line, so long positions with targets at 1.2756 and 1.2786 remain relevant and should be held until the Heiken Ashi indicator reverses downward. Short positions can be considered if the price consolidates below the moving average with targets at 1.2512 and 1.2451.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. It indicates a strong trend if both are directed in the same direction.
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) - probable price channel within which the pair is expected to trade in the next day based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) indicates an upcoming trend reversal in the opposite direction.
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