On Tuesday, the GBP/USD pair again rose and reached a new local high. Despite the absence of macroeconomic reports related to the dollar or the pound on Tuesday (as well as fundamental events), the market found reasons for further selling the US currency. We could write the same thing every day – the dollar is falling completely illogically. It was falling illogically even in the year's first half, but the growth wasn't as pronounced back then. Now, the US dollar has fallen by 600 pips in just three weeks. And let's be honest – what events could even theoretically have triggered such a decline?
Yes, the economic reports on the labor market and unemployment were disappointing again in August. Yes, Federal Reserve Chair Jerome Powell has indicated that the likelihood of a rate cut in September is very high. Yes, inflation in the US is slowly but steadily declining. However, let's take a closer look at these three points.
Unemployment is rising, and the labor market is shrinking, but the Fed says nothing terrible is happening – the labor market is stable, and the unemployment rate is not that high. Moreover, unemployment in the Eurozone is much higher, and it's at the same level in the UK. Therefore, this indicator is unlikely to be a valid reason for the dollar's decline. Furthermore, what did the market expect from these two indicators if the Fed keeps rates at their peak level?
Powell said that the rate could be lowered in September! But isn't this what the market has been expecting since January? At the beginning of the year, the market anticipated 6-7 rate cuts starting in March. The US dollar was regularly sold off throughout this period based on these expectations. Now Powell is speaking at Jackson Hole, and the market is reacting to his words as if hearing about this for the first time. The dollar has fallen for most of this year (and, in fact, for the past two years), and now it has fallen again for what reason? Because after two years of waiting, the Fed will finally start easing its monetary policy? But why did the dollar fall over the past two years?
We have already answered this question – the market tries to price in all major events in advance, which is why the US currency began to depreciate two months after US inflation started to slow down. This is why we expect a trend reversal after September 18. We see that technical indicators currently have no effect on the pair's movement, and the macroeconomic and fundamental backdrop is interpreted only against the dollar. Therefore, there is no pattern in the current movement. Look at the CCI indicator – it simply "doesn't want" to enter the overbought zone for the third or fourth time in a row. It just shows one bearish divergence after another.
Thus, we expect only a decline in the pound, as this is the only reasonable scenario. The only question is how long will major players continue to lower the dollar's value deliberately?
The average volatility of the GBP/USD pair over the past five trading days is 83 pips. For the GBP/USD pair, this value is considered average. On Wednesday, August 28, we expect movement within the range bounded by levels 1.3145 and 1.3311. The upper linear regression channel is directed upwards, signaling the continuation of the upward trend. The CCI indicator may soon enter the overbought zone again and has already formed a triple bearish divergence.
Nearest Support Levels:
- S1 – 1.3184
- S2 – 1.3123
- S3 – 1.3062
Nearest Resistance Levels:
Trading Recommendations:
The GBP/USD pair continues its illogical rise but retains a good chance of resuming a downward momentum. We are not considering long positions at this time, as we believe that the market has already factored in all the bullish factors for the British currency (which are not much) several times. At present, the market continues to buy without any apparent reason. Short positions could be considered, at the very least, after the price settles below the moving average, with targets at 1.2939 and 1.2878. The current movement of the pair has nothing to do with the concepts of "logic" and "pattern."
Explanations for Illustrations:
Regression Channels: help determine the current trend. If both are directed in the same direction, it means the trend is strong at the moment.
Moving Average Line (settings 20,0, smoothed): defines 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 in the opposite direction is approaching.
