The GBP/USD currency pair was also adjusted for most of the day on Wednesday. However, if the euro currency has fallen by almost 400 points over the past few days, then the pound has fallen by more than 600. There is nothing strange about this since the pound is traditionally more volatile than the euro. On the other hand, there were even fewer reasons for such a powerful fall with the update of past local lows than the euro/dollar. Recall that last week the ECB held a meeting, the results of which can be interpreted in different ways. Perhaps the market decided that the ECB was not aggressive enough in its approach, which provoked a powerful fall in the euro. But that's why the pound sterling collapsed every day? Of course, the US inflation report should have provoked a rise in the dollar, just as British statistics should have provoked a fall in the pound. But is it 600 points? Recall that monthly GDP is not an important report, quarterly reports are much more important. Unemployment is usually ignored altogether, as are average wages along with industrial production. All these reports usually trigger a market reaction by a maximum of 30-40 points. Now they have provoked a drop of 600. Therefore, from our point of view, the market began to work out the results of the meetings of the Bank of England and the Fed in advance, starting last Friday.
As for the technical picture, it is approximately the same as for the euro, with the only difference that the pound has updated its local minimum, and the euro currency (as of Wednesday) has not. Already, both linear regression channels are again directed downwards, as are the other trend indicators. From our point of view, the pound may also show some growth in the coming weeks, because it has already fallen too much against the dollar. The Bank of England may raise the key rate for the fifth time in a row and this also means something. The four previous increases did not help the pound to show growth in any way, but such a picture cannot last forever.
Can the Bank of England raise the rate by more than 0.25%?
The Bank of England is a kind of "dark horse" among central banks. For example, the Fed honestly and openly declares from the very beginning of the year that it will raise the key rate and thus fight inflation. The ECB has been silent for a long time, Christine Lagarde has been saying for a long time that there will be no tightening of monetary policy in 2022 at all, and only in the last few weeks information has begun to appear that one or two rate hikes are still possible. The Bank of England has not said anything at all and is not saying anything. It just raises the stakes at each of its meetings. Moreover, after the fourth increase, many experts began to talk about the need to take a break, as economic data in the UK began to deteriorate markedly. But along with this data, inflation continued to grow. That is, it turns out that the increase in the BA rate did not have any positive effect. Moreover, the Bank of England itself forecasts maximum inflation in 2022 at the level of 10.25%. This means that in reality, it may amount to 12%.
Thus, from our point of view, the British regulator may raise the rate by 0.5% today. It is necessary to fight inflation since already the level of dissatisfaction with the actions of the regulator among the population is extremely high. The fall of the economy (small) can be sacrificed, few people will replace ordinary people. But ordinary citizens perfectly see and feel the rise in prices in stores, at gas stations, and in utility bills. But how the pound will react to a hypothetical rate increase of 0.5% at once is a big question. Logically, it should react with strong growth. But an increase of 0.25% may indeed remain almost unnoticed. As in the case of the euro currency, we recommend waiting for the announcement of the results of the meetings of both central banks, waiting for the market to fully work out all this data, and only then analyzing the new technical picture and concluding.
The average volatility of the GBP/USD pair over the last 5 trading days is 179 points. For the pound/dollar pair, this value is "high". On Thursday, June 16, thus, we expect movement inside the channel, limited by the levels of 1.1897 and 1.2256. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 1.1963
S2 – 1.1841
S3 – 1.1719
Nearest resistance levels:
R1 – 1.2085
R2 – 1.2207
R3 – 1.2329
Trading recommendations:
The GBP/USD pair on the 4-hour timeframe has started a weak round of correction so far. Thus, at this time, new sell orders with targets of 1.1963 and 1.1897 should be considered in the event of a downward reversal of the Heiken Ashi indicator. It will be possible to consider long positions again if the price is fixed above the moving average with a target of 1.2451.
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.