The GBP/USD currency pair did not trade very logically on Wednesday evening, and it is difficult to describe what happened on Thursday even in words. In our recent articles, we have repeatedly drawn attention to the fact that the market's reaction to such an important event as a central bank meeting is not always logical and understandable. For example, on Wednesday evening, the pound sterling rose in price, although the Fed decided to raise the key rate and the dollar should have become more expensive. And on Thursday, immediately after the announcement of the results of the meeting of the Bank of England, the pound sterling collapsed, although in this case, it should have been growing. After all, the Bank of England has also raised its key rate. This is the reaction of the market that followed two meetings of central banks. That is why we also said that conclusions should be drawn only after the markets have fully worked out both of these events, and the technical picture may change a lot on Wednesday and Thursday.
In principle, this is what happened: the reaction was illogical, several sharp reversals, increased volatility, unclear prospects. Although, on the other hand, there are still a few technical points. For example, the pound/dollar pair rose during Thursday to the Murray level of "4/8" - 1.3184 and rebounded from it. This level is also the previous local maximum of the pair, that is, the price failed to overcome it twice. Further, both linear regression channels are directed downward, so the trend is now clearly downward. Consequently, the fall of the British pound, regardless of the results of the meetings of the BA and the Fed, may resume. Now it seems that traders deliberately took a break for this week to wait out the meetings of the two Central Banks, and now they are ready to continue to bend their line. And they have been bending the line exclusively downwards in recent weeks. Recall that the key reason for the fall of the euro and the pound is geopolitics. And since the conflict in Ukraine is not resolved in any way, risky assets and currencies may well continue their decline.
The Bank of England did not present any surprises and completely repeated the Fed's rhetoric.
So, the Bank of England raised the rate to 0.75%, thus reaching the pre-pandemic level of borrowing costs. It should be noted that 8 out of 9 members of the monetary committee voted for the rate increase. That is, almost unanimously. The Bank of England said that inflation will continue to accelerate and will reach its peak of about 8% in the second quarter of this year. However, under certain circumstances, it can grow even stronger. The final communique stated that the military conflict in Ukraine provoked an even greater increase in the cost of oil and gas, which led to an acceleration in the growth of prices for almost everything. BA also expects that the economies of energy importing countries may slow down in the coming quarters. The regulator also made it clear that it is ready to further tighten monetary policy to stop the growth of inflation. Now, as they say, find 10 differences between the statements of the BA and the Fed.
From our point of view, the results of the two meetings are almost the same. Both Central banks raised the rate, both complained about high inflation, both showed readiness for new tightening. Therefore, why the pound sterling fell immediately after the announcement of the results, especially considering that this time Andrew Bailey did not comment on the situation in any way, is unclear. From our point of view, the market just keeps bending its line. This week, the British pound moved up a little, so it seemed to take acceleration before a new fall. After all, the geopolitical and economic situation has not changed dramatically in the world. If earlier traders found a reason for fairly strong sales of the pound, they can continue to find them in the near future. Therefore, so far everything is going to ensure that the pair will consolidate below the moving back and go below the 30th level. As you can see, the macroeconomic background has had virtually no effect on the pair's movements this week.
The average volatility of the GBP/USD pair is currently 102 points per day. For the pound/dollar pair, this value is "average". On Friday, March 18, thus, we expect movement inside the channel, limited by the levels of 1.3064 and 1.3268. The reversal of the Heiken Ashi indicator downwards signals a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.3123
S2 – 1.3062
S3 – 1.3000
Nearest resistance levels:
R1 – 1.3184
R2 – 1.3245
R3 – 1.3306
Trading recommendations:
The GBP/USD pair has started a powerful upward movement on the 4-hour timeframe, which can end very quickly. Thus, at this time, you should stay in buy orders with targets of 1.3245 and 1.3268 until the Heiken Ashi indicator turns down. It will be possible to consider short positions no earlier than fixing the price below the moving average with targets of 1.3062 and 1.3000.
Explanations to the illustrations:
Linear regression channels - help 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.