4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
The GBP/USD currency pair also did not show anything special on Monday, but in the afternoon it still attempted to continue its upward movement. Thus, we recall that last week, while the EUR/USD pair was standing in one place, the GBP/USD pair was actively growing. Maybe there will be something similar this week? After all, there were also no serious macroeconomic statistics last week. And the "foundation" from the UK was quite twofold and definitely could not provoke the growth of the British currency by 250 points. The pound rose less when the Bank of England announced an increase in the key rate. Thus, we still believe that a technical correction is taking place in a "thin" market. If so, then the pound sterling can continue to grow in price, and the euro currency at the same time stands in one place. A new week has begun, but there were no important statistics either. The technical picture now looks as if a new upward trend is beginning to emerge. The junior linear regression channel has already turned upward, the price has failed to gain a foothold below the Murray level of "0/8" - 1.3184. In addition, we remind you that on the 24-hour timeframe, the pair bounced from the strongest 38.2% Fibonacci level. Consequently, most of the technical factors speak in favor of further growth of the pound sterling.
Will the Bank of England continue the trend of tightening monetary policy?
We will not once again consider the topic of "coronavirus" and "omicron" in the UK, because it is considered every day by everyone who is not lazy. Instead, it is better to fantasize about whether the increase in the key rate by the Bank of England in December was an accident, and whether the British regulator will keep the course for tightening monetary policy. From our point of view, BA hastened to raise the rate. However, he hurried precisely because of the ambiguous next "wave" of the pandemic, which is unknown when and how it will end. After all, the consequences may be such that the economy will have to be stimulated again. If the results of the pandemic were predicted so easily and simply, it would probably be possible to avoid many economic problems. But the thing is that it is not easy and simple to predict the consequences. Therefore, it is unknown how everything will end. Inflation in the UK, of course, is also growing, and it also needs to be contained, but the Bank of England has left the QE program in the same volume. It turns out to be a situation in which they try to force the car to go faster with the brake pedal clamped.
Thus, in the coming months, logically, the Bank of England should have decided to reduce the quantitative stimulus program, but economists are already trumpeting to all sides that the omicron strain will lead to a drop in economic growth. Even now, in a single industry of air transportation, it is visible exactly where Omicron can harm. No, people very rarely die and carry this strain hard. However, too many people get sick with it, so there is simply no one to work in some companies. For example, about 6,000 flights around the world had to be postponed on Friday and Saturday simply because a large number of pilots were ill and there was no one to pilot the planes. The same pattern can be observed in other industries. And all this taken together will harm the economy. And it turns out that in the country where the percentage of cases will be the highest, there we should expect the maximum slowdown in the economy in the third and fourth quarters. Therefore, everything will depend in the coming months on the omicron pandemic, which is "not too dangerous for humans."
The average volatility of the GBP/USD pair is currently 73 points per day. For the pound/dollar pair, this value is "average". On Tuesday, December 28, we expect movement inside the channel, limited by the levels of 1.3362 and 1.3508. The reversal of the Heiken Ashi indicator downwards signals a round of downward correction.
Nearest support levels:
S1 – 1.3428
S2 – 1.3397
S3 – 1.3367
Nearest resistance levels:
R1 – 1.3458
R2 – 1.3489
Trading recommendations:
The GBP/USD pair broke out of the side channel on the 4-hour timeframe and continued its strong upward movement. Thus, at this time it is possible to stay in the longs (since there is no correction yet) open after fixing above the moving average line. The goals are 1.3458 and 1.3489. Exit the longs if the Heiken Ashi indicator turns down on Monday. Short positions should be considered if the pair is fixed back below the moving average with targets of 1.3306 and 1.3275.
Explanations to the illustrations:
Linear regression channels - help to 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.
