On Tuesday, the GBP/USD currency pair also showed extreme volatility and a significant price spread. The pair traded higher for most of the day, which can be considered a basic technical correction, but the macroeconomic background, which was strong yesterday, cannot be ignored. The UK unemployment report should come first. This indicator is still at its previous value of 3.7%. We think that Britain and the British pound are already getting a lot out of this. The unemployment rate was taken into account by the Bank of England when generating its pessimistic economic predictions. Although Andrew Bailey acknowledges that unemployment may reach 5–5.5% in 2023, the fact that this has not yet happened is quite encouraging. As a result, the pound had a strong foundation for growth from the start.
The causes for its strengthening in the afternoon were much less numerous, but the pair did not exhibit a noticeable upward or downward movement. Instead, it had extremely volatile fluctuations in both directions, which is also consistent with the requirement to finish an upward correction. A minor decline in US inflation, in our opinion, is positive for the US dollar since it increases the likelihood that the Fed will tighten monetary policy further in 2023. Of course, it would be wiser to hold off at least until the February value; if it is low, it will be possible to anticipate a further 1-2 percentage point rise. The US dollar hasn't increased as much as it could, but we still predict that this week will see a return to growth. The moving average line was confidently crossed by the pound/dollar pair at the same time, changing the trend from downward to upward. However, there was no consolidation above the crucial level on the 24-hour TF, which is why we think that there is a significant chance that the pair will continue to drop. We should also mention that a report on British inflation will be revealed today, which will have a specific significance for the foreign exchange market.
The question of the week is how the market will respond to inflation in Britain.
When compared to the United States, where inflation has made everything more complicated, everything in the UK is far more complicated. It is essentially not dropping, and we would need to observe a significant decline today to conclude that the downward trend is just getting started. Remember that even though the price of oil and gas has decreased globally, only British inflation shows signs of slowing down. The key rate had already been increased by the Bank of England ten times in a row, which likewise did not have the desired impact on price growth. As a result, we should expect another slight slowdown today, which, incidentally, is supported by the official expert predictions. What does it signify?
First, without waiting for inflation to naturally begin to decline, the British regulator is simply required to keep tightening monetary policy. These clues came from Andrew Bailey and other BA representatives in all directions. They predict that the consumer price index will start to drop significantly in 2023, but they are unsure as to why this has not yet happened. Don't fire individuals, especially to make up for the labor scarcity and rising wages brought on by intense competition. The Bank of England, on the other hand, will not necessarily become more "hawkish" in response to a minor slowing in inflation. Instead, the Bank of England has already lowered the rate of growth, and two of the committee's nine members have already repeatedly voted against tightening. As a result, BA does not dismiss the economies of the triumvirate (EU, USA, and UK) as having the highest risk of a severe recession. Although the likelihood of a severe recession has recently diminished, five quarters is still a long time. Forecasts for the next eight quarters could alter swiftly if the rate rises as expected. Therefore, if inflation once again indicates a modest decrease, we cannot say for sure that the pound will increase tomorrow.
Over the previous five trading days, the GBP/USD pair has averaged 116 points of volatility. This figure is "high" for the dollar/pound exchange rate. Thus, we anticipate movement inside the channel on Wednesday, February 15, with movement being limited by levels of 1.2059 and 1.2291. When the Heiken Ashi indicator reverses direction and moves back down, a new round of downward correction will begin.
Nearest levels of support
S1 – 1.2146
S2 – 1.2085
S3 – 1.2024
Nearest levels of resistance
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading Suggestions:
A new upward trend has begun for the GBP/USD pair in the 4-hour timeframe, but it might end very rapidly. Therefore, until the Heiken Ashi indicator turns down, it is still possible to hold long positions with targets of 1.2268 and 1.2291. If there is a consolidation below the moving average, you can start trading short with 1.2059 and 1.2024 as your targets.
Explanations for the illustrations:
Determine the present trend with the use of linear regression channels. 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.
