The GBP/USD currency pair also traded fairly calmly on Wednesday. Volatility has increased in recent days, which is encouraging because it makes it possible to trade and expect decent profits, at least on lower timeframes. Over the past few weeks, the pound has even formed a semblance of a downward trend, which is also encouraging after a 4-month flat period. The only question is how long the decline of the British currency will actually last.
The 4-month flat was not accidental. It eloquently tells us that someone among the market makers strongly opposed the pound falling against the dollar. We do not believe that the British currency showed staggering resistance out of nowhere. It has been well-known in recent months that the first easing of the Fed's policy will happen closer to the end of the year. Or next year. Therefore, the British pound is clearly too high against the US dollar. The market anticipated unverified information. If the Fed, as the market expected, had started easing in March, everything would have been logical. But now that won't happen, and the Bank of England, in the meantime, may begin to lower its rate as early as this summer.
Reuters conducted a survey among analysts and economists about when the Bank of England will first lower its rate. Half of the respondents answered June, while the other half said the third quarter. Thus, if economists are correct this time, the Bank of England may start easing its monetary policy before the American regulator. At the beginning of the year, expectations were the opposite. However, current inflation indicators show that such an option is indeed possible.
British inflation has already dropped to almost 3%, although initially it was several percentage points higher than the American. Of course, this does not mean that the consumer price index in the UK will continue to slow down so quickly. But at the same time, we must acknowledge the fact: the Bank of England is now closer to easing than the Fed. Naturally, this factor (like many others not yet worked out by the market) should put pressure on the GBP/USD pair. However, we have long been saying that the British pound is too overbought.
I would like to separately note yesterday's report on durable goods orders in the US, as it is quite an important report in the overall statistics package. Overall, this report turned out to be stronger than forecasts, which prompted a slight strengthening of the American currency. But now the market has entered a correction stage, so in the next few days, we may see a continuation of the rise of the British currency. However, any consolidation of the price below the moving average should and can be used to open short positions, as corrections can be very weak. The triple overbought condition of the CCI indicator speaks in favor of the pound now.
The average volatility of the GBP/USD pair over the last 5 trading days is 83 points. For the pound/dollar pair, this value is "average." Therefore, on Thursday, April 25, we expect movement within the range limited by the levels of 1.2349 and 1.2513. The senior channel of linear regression is directed downward, signalling a downward trend. The CCI indicator entered the oversold zone three times recently, which triggered a surge in the British currency. However, this should only be a retracement or correction.
Nearest support levels:
S1 – 1.2390
S2 – 1.2329
S3 – 1.2268
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2512
R3 – 1.2573
Trading recommendations:
The GBP/USD pair has completed its flat on the 24-hour TF, and this is the most important thing right now. We still expect movement only to the south, and now that the level of 1.2500 has been overcome, one can consider selling the pair with targets at 1.2329 and 1.2268. Buying the British pound under conditions of price exiting the sideways channel through the lower boundary is not relevant. The pair may rebound upwards, as the CCI indicator has entered the oversold zone three times, but we do not consider it advisable to work out this correction.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, it means that the trend is currently strong.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and 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 zone (below -250) or the overbought zone (above +250) indicates that a trend reversal in the opposite direction is approaching.
