The GBP/USD currency pair did not even qualify for a correction on Monday. The pair started the decline at night and continued it all day. However, the correction for the European currency is very weak, so it's not quite right to say now that the euro currency is being adjusted, but the pound is not. It is correct to say that both currencies continue to fall strongly against the US dollar. And it's not their fault at all. Recall that the euro and the pound are not falling because of any macroeconomic events or reporting. They are falling simply because the demand for the dollar is growing every day. The US dollar continues to be the "reserve currency" for the whole world, and it is difficult to find a more dangerous geopolitical situation than now in Eastern Europe. Recall that we are talking about a full-scale war in the very center of Europe. We are talking about an invasion of a neighboring state. Naturally, Western leaders impose sanctions against the Russian Federation in batches, breaking even more logistics and production chains and leaving the Russian market.
This is more than a stressful situation for markets and investors. However, this can be seen in any instrument and any market. Cryptocurrencies as a whole have continued to fall in the last few months (and it hasn't even reached the Fed rate hike yet), stock markets are declining, the raw materials and oil market are growing, Russian markets are falling into the abyss. What does this mean? The flow of capital from one instrument to another, the flow of capital from one market to another. Thus, the foreign exchange market also gets it. Here, too, there is a flow and inflow of capital into dollars. And the pound and the euro, it turns out, just happened to be at the wrong time and in the wrong place. Although this situation cannot even be considered beneficial for the States. Recall that Donald Trump has repeatedly stated that the States do not need an "expensive" dollar. This was explained by the fact that America has a very high public debt that should be serviced and the more expensive the dollar, the more difficult it is to do it. Nothing has changed now. Only the debt has grown and it is already 30 trillion.
American inflation.
There will be an extremely small number of important statistics this week. In the UK, economic publications are scheduled only for Friday. On this day, GDP and industrial production will be known. Recalling previous similar reports, we can assume that there will be no market reaction to them. The market is now too keen on the dollar and the US currency is growing even without the help of a "foundation". And strong statistics from the UK will be able to raise the rate of the British currency by 50 points no more. Therefore, this data will not affect anything in any case. Especially now.
In the US this week, it will be possible to pay attention only to the inflation report, which will be released on Thursday. The consumer price index is expected to grow to 7.9-8.0% y/y by the end of February. That is, it will not even lose its growth rate and, as it were, will send "greetings" to Jerome Powell, who recently announced that he would support a rate hike of only 0.25% at the Fed meeting on March 15-16. Earlier, Powell repeatedly said that "the growth of inflation is a temporary phenomenon" and only in January admitted that the interpretation of "temporary" was wrong. Well, the beginning of 2022 shows the whole world that all economic forecasts for this year can be safely thrown into the trash. To at least stop the current inflation in the States, the rate needs to be raised to at least 1%. And such a value can be achieved only in the summer. It's hard to even imagine how much inflation will be in the summer. Apart from inflation, there will be no more important publications in the US. On Friday, the consumer sentiment index from the University of Michigan will be released, but who can be interested in it at all now? Therefore, geopolitics and the inflation report in the States will be in the first place this week.
The average volatility of the GBP/USD pair is currently 132 points per day. For the pound/dollar pair, this value is "high". On Tuesday, March 8, thus, we expect movement inside the channel, limited by the levels of 1.2980 and 1.3242. A reversal of the Heiken Ashi indicator upwards will signal a round of corrective movement.
Nearest support levels:
S1 – 1.3123
S2 – 1.3062
Nearest resistance levels:
R1 – 1.3184
R2 – 1.3245
R3 – 1.3306
Trading recommendations:
The GBP/USD pair continues its strong southward movement on the 4-hour timeframe. Thus, at this time, you should stay in new sell orders with targets of 1.3062 and 1.2980 until the Heiken Ashi indicator turns up. It will be possible to consider long positions no earlier than fixing the price above the moving average with targets of 1.3367 and 1.3428.
Explanations to the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
