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The GBP/USD currency pair returned to the moving average line on Wednesday and Thursday, as expected after a sharp drop on Tuesday. The most important thing is to avoid continuing the "swing" that we have seen in recent weeks. To accomplish this, the price must be below the moving average at the end of today; otherwise, the process will restart. And for this to happen, the dollar must receive local support from today's solid American statistics. But, the pair might theoretically resume falling even without the support of the macroeconomic backdrop. How many times has it happened that strong data or the foundation triggered movement in both directions in a short period, only for the market to settle down and return to its previous positions?
We anticipate a decline for both the pound and the euro over the next few months. After increasing by more than 2,100 points in a short period, we continue to think that the pound sterling has not adjusted sufficiently. The best view of this is on the 24-hour TF. Sadly, it is also plainly obvious on the same 24-hour TF that the pair continues to be in a side channel with a width of 600 points. It has been inside of it for a while. Consequently, it is quite challenging to predict that the downward trend will continue until the 1.1841 level is crossed. But, there are still no particular causes for the pound to increase. Thus, it is extremely harder to plan for long-term growth. Much, as before, is now dependent on the monetary policies of the Bank of England and the Fed, and things are not looking good for the pound. We have often stated that we have serious doubts about the ECB and BA's capacity to stay up with the Fed on the issue of rates. As of now, our expectations are perfectly warranted because the UK consistently sends out indications that the rate of tightening monetary policy will slow down once again and that the cycle of rate hikes is quickly coming to an end. The Fed, however, is simultaneously raising the rate and will do so for as long as necessary. Given this fundamental background, the dollar may increase by another 500–600 points.
American statistics are both significant and empty.
Today in the UK, completely worthless data on the GDP and industrial production will be made public. They might be followed by a minor market reaction, but even that won't mean much. Merely because monthly GDP data has never been essential for the market, and industrial production is no longer that important. Regrettably, only the Bank of England can prevent the pound from falling further. Yet, given that the rate has already been raised 10 times and inflation is still at 10%, what can we expect from the Bank of England at this point? There will undoubtedly be a recession in the UK economy, and the higher the interest rate, the more likely it is that this recession will be protracted and severe. Like the Fed, the British regulator simply does not possess the justifications for an endless rate hike. Hence, even if the rate in Britain goes to 5%, it will not fundamentally change anything. The Fed's rate will remain higher, and a drop in inflation to 2% will not be possible with just 5%.
As a result, we think that the pound will eventually collapse. The pound is currently holding on with all of its remaining strength, but this will not continue forever. In his last speech, Andrew Bailey did not endorse the pound; rather, his rhetoric was rather inconsistent. It is not expected by the market for BA to act aggressively again, making it very difficult to think that rates will continue to rise. What else, in theory, could now sustain the pound? A falling economy - no, high inflation with a weak BA ability to maintain tightening - no, strong GDP and business activity - no. So, we think that the market will gradually push the pound down. Because the ECB rate is currently even lower than the BA rate, the British pound is currently holding slightly better than the euro. Nevertheless, we are now comparing the pound to the dollar rather than the pound to the euro. The pound's stronger resistance to the US dollar does not guarantee that it will not decrease in the future.
Over the previous five trading days, the GBP/USD pair has averaged 114 points of volatility. This value is "high" for the dollar/pound exchange rate. As a result, on Friday, March 10, we anticipate movement that is limited by the levels of 1.1803 and 1.2031. The Heiken Ashi indicator's downward turn will indicate that movement towards the south has resumed.
Nearest levels of support
S1 – 1.1902
S2 – 1.1871
S3 – 1.1841
Nearest levels of resistance
R1 – 1.1932
R2 – 1.1963
R3 – 1.1993
Trade Suggestions:
On a 4-hour timeframe, the GBP/USD pair is still trading below the moving average. In the case of a downward reversal of the Heiken Ashi signal or a price recovery from the moving average, it is currently viable to take into account new short positions with targets of 1.1841 and 1.1810. If the price is fixed above the moving average, long positions with targets of 1.1993 and 1.2024 may be taken into account.
Explanations for the illustrations:
Channels for linear regression - allow us to identify the present trend. The trend is now strong if they are both moving in the same direction.
Moving average line (settings 20.0, smoothed): This indicator identifies the current short-term trend and the trading direction.
Murray levels serve as the starting point for adjustments and movements.
Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day.
A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.
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