The GBP/USD currency pair adjusted again to the moving average line on Tuesday and generally did not give the impression of a ready tool to move down. Recall that traders recently received quite a large amount of important fundamental, macroeconomic, and political information, so now is the time to organize it and analyze it in mass. When there are a lot of factors, some of which openly contradict each other, it is difficult for traders to make an informed decision. As a result, the instrument can move in different directions or flat. So far, neither the first nor the second option threatens the pound, but still, it should be recognized that the movement in the last week is not the best. There seems to be a downward trend, but at the same time, the pair is constantly correcting upwards. Thus, from a technical point of view, the downward trend persists but is very unstable and weak.
The pound sterling retains a fairly high chance of growth, but at the moment, some factors can support the growth of the dollar. The US dollar still looks the strongest and most confident, but it has been struggling to continue strengthening in recent weeks. It should also be remembered that any trend ends sooner or later, and the fact that the dollar has been growing for a year and a half against the euro and the pound does not mean that it will grow for another year and a half. Thus, at the moment, the British currency has reasons for falling, but they are less expressive than the reasons for the fall of the euro, whose ECB continues to occupy the most passive position among the central banks of the EU, the USA, and Britain.
The pound has been getting cheaper for 15 years.
What factors are currently supporting the pound? The first is that the pound has already fallen quite a lot in the last year and a half, and the downward trend has been going on for 15 years. Yes, 15 years ago, the British pound began to fall from $ 2.12. The second is that the Bank of England is almost keeping pace with the Fed and is now preparing for the worst in terms of inflation. However, it is also preparing for the worst in terms of recession, so it is not entirely clear whether the regulator will now do everything to reduce inflation or everything to get out of the recession as quickly as possible. Andrew Bailey has repeatedly said that inflation comes first, so we can assume that the regulator will continue to raise the key rate. And this is a bullish factor for the pound.
What factors are currently supporting the dollar? The first is its status as a "reserve" currency, especially against the background of the deteriorating geopolitical situation. The second is a more hawkish approach to the Fed's monetary policy. The third is a fairly high probability of avoiding a recession in the US economy against the background of a high probability of its beginning in the UK economy. The fourth is that the geopolitical conflict in Eastern Europe has practically nothing to do with the United States but has a strong, negative impact on the British economy. The fifth is that the British economy has not yet fully survived Brexit. It may survive the separation of Scotland in the next five years, it will survive the change of the leader of the Conservative Party and the Prime Minister in the next six weeks, and it is also rushing to court proceedings with the European Union at full speed.
Thus, we still believe that the pound will become cheaper. It may not be too fast, with deep corrections or long pauses, but it will become cheaper. In principle, in 2022, it may fall to its 30-year lows near 1.1400. Of course, everything will depend (as before) on the geopolitical situation, from the new "amazing" news from the UK to the pace of monetary policy tightening by the central banks of Great Britain and the United States. But so far, the overall picture still favors the US currency. By the way, the British pound is only 400 points from its 2-year low. That is, it won't take much time and effort to get back to them. We are now waiting for the US inflation report – it can help the British pound to resume falling.
The average volatility of the GBP/USD pair over the last 5 trading days is 116 points. This value is "high" for the pound/dollar pair. On Wednesday, August 10, thus, we expect movement inside the channel, limited by the levels of 1.1969 and 1.2201. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
Trading Recommendations:
The GBP/USD pair continues to be located below the moving average on the 4-hour timeframe. Therefore, at the moment, new sell orders with targets of 1.2024 and 1.1969 should be considered in the event of a price rebound from the moving average. Buy orders should be opened when fixing above the moving average line with targets of 1.2207 and 1.2268.
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 to trade now.
Murray levels are target levels for movements and corrections.
Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators.
The 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.