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The GBP/USD pair did not show any interesting movements on Wednesday. While the Eurozone inflation report drove the EUR/USD pair, the GBP/USD pair did not have such a significant macroeconomic background. Thus, the pair traded sideways all day until the results of the Federal Reserve meeting were announced (which we will not discuss in this article).
It is worth noting that low volatility is not just a problem for the euro. Almost the entire market is currently trading as if its doing someone a favor or waiting for some major event. However, knowing that the market is waiting for something does not help us much. Day traders want to trade—not once a week, but every day. The market is not currently providing them with this opportunity.
Today is the Bank of England meeting; tomorrow, the market will have the non-farm payrolls and unemployment data in America. We hope the market will move from its "dead" point and start showing some movements. However, enough reports have already been released this week that have not led to a strong market reaction. Therefore, we would not be surprised if the British pound also moves weakly today. Market activity will increase somewhat when the British central bank announces the meeting results. It will increase in almost any case. We believe that any decision by the BoE regarding the rate will surprise a certain part of the market. If the BoE lowers the rate (as official forecasts currently suggest), it will exert pressure on the pound because many do not believe in a rate cut on August 1. If the BoE does not lower the rate, the pound will rise because some of the market is already prepared for a rate cut.
In our opinion, the British pound should continue to fall in any case, just like the euro. The most important factor right now is inflation indicators. In the Eurozone, the CPI has stopped declining in recent months, a problem for the European Central Bank. Similarly, it might also cease to decelerate in the UK. However, in the UK, inflation has already reached the central bank's target level. Therefore, it would be even better if inflation did not slow down further.
Core inflation and service sector inflation will eventually align with the headline inflation. However, if the headline figure falls significantly below 2%, then in six months to a year, the central bank will have to address the problem of low inflation. It is worth noting that inflation should be strictly around 2% for stable economic growth. At least, this is the belief held by the Fed, ECB, and BoE. The British pound has been trading higher for several months, ignoring almost all positive events and news for the U.S. dollar. Therefore, we do not expect it to continue rising under any circumstances. However, in the 24-hour time frame, the price has yet to overcome the Kijun-sen line of the Ichimoku indicator. At the very least, a bullish rebound is possible, followed by a second attempt to overcome this line.
The average volatility of the GBP/USD pair over the last five trading days is 51 pips. This is considered a low value for the pound/dollar pair. On Thursday, August 1, we expect movement within the range limited by 1.2783 and 1.2885. The higher linear regression channel is directed upwards, signaling the continuation of the upward trend. The CCI indicator has entered the overbought area twice, signaling a potential trend reversal. In addition, a bearish divergence has formed.
The GBP/USD pair continues to trade below the moving average line and has a real chance for a significant decline. Volatility remains low, but short positions are currently valid, with initial targets at 1.2787 and 1.2776. A bullish correction might occur, after which the decline is expected to resume. We are not considering long positions at the moment, as all the bullish factors for the British currency (which are not much) have already been factored in by the market multiple times. Even if the pound shows a new upward movement, it will not add logic to such a movement.
Linear Regression Channels: help determine the current trend. If both are directed in the same direction, it means the trend is strong.
Moving Average Line (settings 20,0, smoothed): determines the short-term trend and the direction in which trading should 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 24 hours, based on current volatility indicators.
CCI Indicator: Entering the oversold area (below 250) or the overbought area (above +250) means a trend reversal is approaching.
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