Good day, dear traders!
On the eve of major events, trading on the GBP/USD currency pair is quite uncertain. Market participants are still holding back from decisive actions, waiting for tomorrow's decision on the interest rate from the British Central Bank and the comments of the Bank of England. The regulator is expected to make no changes to its monetary policy and the main rate will remain at 0.10%. Investors are more interested in how the votes of members of the monetary policy committee will be distributed when making a decision on the key interest rate. We can assume that sensational statements from the Bank of England will not follow tomorrow. Most likely, the bank will consider it wise to keep the trumps up its sleeve in case of an urgent need to use them in the future. However, there are risks of additional monetary policy easing when the situation requires it. Let's not forget the fact that the end of the divorce process called Brexit is not yet complete and it is not yet clear whether the UK will leave the European Union through a deal or without one.
Regarding the asset purchase program, its volume at the end of tomorrow's meeting of the Bank of England is likely to remain in the amount of 745 billion pounds. At the same time, some analysts of the largest investment banks do not rule out that the new QE program may be increased by another 100 billion pounds. Time will tell.
Following the decision on the Bank of England's rates, labor reports from the US Department of Employment will be released on Friday, which will show the situation in the labor market, taking into account the negative impact of COVID-19 on the US economy.
In general, it is the last two trading days of the current five-day period that will determine the exchange rate of the pound/dollar currency pair and significantly affect the closing price of weekly trading.
Daily
In the meantime, we see that the bears' attempts to seize the initiative from their opponents by the pound are being dashed to smithereens near the iconic psychological and technical level of 1.3000. At yesterday's trading, bears again tried to push this important level, but at 1.2970 the pair gained strong support, and as a result of an active recovery, it ended Tuesday's session at 1.3067. The long lower shadows of the last two candles clearly indicate the market's reluctance to trade under 1.3000 and suggest a subsequent increase in the price.
At the moment of writing this article, this is exactly what is happening. The pound/dollar pair shows moderate strengthening and is trading near another strong technical level of 1.3080. Despite the upcoming important events, the closing price of today's trading will be no less relevant for the market relative to the level of 1.3111, where the maximum values were shown on August 3. The breakdown of this strong resistance of sellers will open the way to an equally significant resistance area, which was formed in the area of 1.3170-1.3200.
Conclusion and trading recommendations for GBP/USD:
I would like to remind you that in the vast majority of cases, the price dynamics of a particular currency pair is determined by the technical picture on higher timeframes. If we take this factor into account, then the last weekly candle for sterling is more complete and has a slight upper shadow, which cannot be said about the euro/dollar currency pair.
Based on this technical component of the candle analysis, I would venture to assume that the GBP/USD pair has a greater potential for probable growth. Although again, it is unknown what the reaction of market participants will be to the decision and comments of the Bank of England and Friday's Non-Farm.
Nevertheless, I adhere to an optimistic scenario for this currency pair and expect growth, which is why I recommend considering opening long positions when falling to the 1.3070-1.3050 zone. Pound purchases after a short-term decline to 1.3020-1.2980 can be considered less risky and at a more attractive price.
At the same time, the appearance of bearish candles in the resistance area of 1.3100-1.3111 will be a signal to open short positions, but with small goals, about 30-40 points. After all, the main scenario is an ascending one, where the nearest targets for fixing purchases are 1.3100, 1.3160 and 1.3200.
Successful and profitable trades!