The GBP/USD currency pair continued to fall on Monday as if there had been no weekend, there was no need to adjust up a little, and also destructive data for the pound came out. But in fact, it was almost the opposite. In our articles yesterday, we said that Monday would be a very revealing day. We said that if the fall of the pound continues with an empty calendar of events, it will mean that traders are again looking toward selling the British currency and are ready to do it even without a fundamental or macroeconomic background. It seems that the report on US inflation at the end of last week was just a necessary boost for the bears. It is unlikely that an almost ordinary report that showed nothing new and unexpected could provoke a drop in the pound by 350-400 points in a couple of days. It should also be noted that the pound sterling also maintains a long-term downward trend. Accordingly, after an upward correction in the last few weeks, the pair received a new opportunity to resume the downward trend. Some time ago, we were counting on the fact that the downward trend is nearing its end since the euro and the pound have already fallen in price very much, but practice shows that this process can take much longer.
In principle, it doesn't even make much sense to consider fundamental, geopolitical, or macroeconomic backgrounds right now. They have remained unchanged for a long time. The pound sterling, like the euro currency, can now rely only on luck or on any drastic changes in the world. For example, things should get dramatically worse in the States than they are now. Or the geopolitical conflict in Ukraine must stop. Without drastic changes, it is simply pointless to expect that the situation in the foreign exchange market will change dramatically.
The British economy has been showing negative dynamics for the second month in a row.
In the first paragraph, we indicated that there were no important macroeconomic events yesterday. This is not quite true, because, in the UK, reports on GDP and industrial production were published early in the morning. Both turned out to be worse than forecasts, and the GDP report showed -0.3% in April. Thus, for the second month in a row, the British economy is shrinking. So far, not too much, but at the same time, a certain trend is already emerging. We have repeatedly said that any rate increase will not only dampen inflation but also slow down the economy. Investments at rising rates are declining, and loans and deposits are becoming more expensive. If loans and deposits are getting more expensive, then what are you doing? Do you take out a loan or carry money for a deposit? The answer is obvious. However, both in the case of Great Britain and in the case of the United States, the situation has turned out in such a way that it is time to talk about a new economic crisis. Because both Central banks regularly raise rates (and they can do it again this week), inflation has been growing and growing. But the American and British economies began to shrink. That is, not to slow down in its growth, namely to shrink. But the rates have so far increased only to 1%. What will happen when the Fed raises the rate to 3%? Thus, the more we see such figures, the scarier it becomes for the future. The last few years have already turned out to be very nervous, but every next year presents new surprises.
As for the correspondence of macroeconomic statistics to the real movement of the pair on Monday, we would not even look for this correlation. First, because the pound began its fall at night, without even waiting for the data. Second, the monthly inflation report cannot provoke a movement of 150 points, quarterly reports are more important. Third, the euro was also falling all day, and there was no important data for it on Monday. Therefore, even if there was also an empty calendar of events in the UK, the pound would still fall. And this only means that traders are not even looking toward buying the British currency. There are still purely theoretical chances of ending the downward trend, but given the movements of recent days, we would not recommend buying the pound.
The average volatility of the GBP/USD pair over the last 5 trading days is 145 points. For the pound/dollar pair, this value is "high". On Tuesday, June 14, therefore, we expect movement inside the channel, limited by the levels of 1.2013 and 1.2303. The upward reversal of the Heiken Ashi indicator signals a round of corrective movement.
Nearest support levels:
S1 – 1.2146
S2 – 1.2085
Nearest resistance levels:
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading recommendations:
The GBP/USD pair continues a strong downward movement in the 4-hour timeframe. Thus, at this time, you should stay in sell orders with targets of 1.2085 and 1.2013 until the Heiken Ashi indicator turns up. It will be possible to consider long positions again if the price is fixed above the moving average with targets of 1.2512 and 1.2573.
Explanations of 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 you should trade 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.