On Thursday, the GBP/USD currency pair completed another round of upward correction, within which it failed to reach the moving average line. And that's all you need to know about the current desire of traders to buy the pound. In principle, absolutely everything we said in the euro/dollar article also applies to the pound/dollar pair. Geopolitics and the foundation affect the market mood identically, both for the euro and the pound. And this means that the British currency can continue its decline in the same way as the euro currency, moving to its more than thirty-year lows. Sometimes it seems that the British currency is not as bad as the European one. After all, the Bank of England is raising the key rate and will most likely continue to do so in 2022. Otherwise, there will be a situation when the regulator has achieved the beginning of a recession by tightening monetary policy, and inflation has grown even stronger. They will not stop halfway in Britain, so the rate will also rise, as in the USA. And this means that GDP will shrink because the pressure on the economy will increase. Traders are now more interested in the size of the key rate and the program to reduce the money supply (QT) than the state of the economy. Therefore, the more the rate in the UK increases, the less the pound will fall. And it will fall anyway because the Fed raises the interest rate faster and stronger.
But in the UK, there are a lot of other problems that, in the long term, can have quite a strong impact on the pound. We have repeatedly discussed the "Scottish referendum," Brexit, the "Northern Ireland Protocol," and regular political crises. All this does not support the demand for the pound, although it does not yet exert direct pressure on it. Nevertheless, the "Scottish referendum" is potentially the loss of a third of the Kingdom's territory. The "Northern Ireland Protocol" is potentially a conflict and a trade war with the European Union. Political crises are regular reshuffles in Parliament. That is, all these are problems. But now, it is necessary to start from the divergence in rates between the Fed and the BA and geopolitics.
Liz Truss is ready to use nuclear weapons for defense.
Meanwhile, everything is going smoothly in the UK because Liz Truss, who currently holds the post of Foreign Minister, will become the new leader of the Conservative Party and, accordingly, the Prime Minister. Regular debates between Truss and Sunak are continuing, and the conservatives, whose total number exceeds 160 thousand, have already decided on their choice by 70 percent. Truss continues to amaze with his determination. She said that if she wins the election, she will be ready to press the "nuclear button" to protect British citizens, even if it means "global annihilation." Recall that Moscow has also repeatedly received "nuclear threats," and relations between Moscow and London have deteriorated completely.
It should also be noted that Truss's words did not shock everyone at the debate. On the contrary, her words were caused by ovations, which indicates, at least, that Truss has support and is popular among the British. And the fact that London is also ready to "press start" in case of something does not add stability and security to the current world. So far, everything proves that the geopolitical situation will continue to heat up. Still, whether it will "explode." I would like to believe that it will do so without this, but every new speech from the "first peoples of the world" indicates that no one wants war, but if there are claims and threats, everyone is ready to participate. The only question is who is on whose side. The situation remains tense, and the demand for "safe-haven assets" is always growing in such conditions. The dollar is the safest currency, which has also been growing in recent years against most of its competitors.
The average volatility of the GBP/USD pair over the last 5 trading days is 113 points. For the pound/dollar pair, this value is "high." On Friday, August 26, thus, we expect movement inside the channel, limited by the levels of 1.1688 and 1.1914. A reversal of the Heiken Ashi indicator upwards will signal a new attempt to correct.
Nearest support levels:
S1 – 1.1780
S2 – 1.1719
S3 – 1.1658
Nearest resistance levels:
R1 – 1.1841
R2 – 1.1902
R3 – 1.1963
Trading Recommendations:
The GBP/USD pair continues to be located below the moving average on the 4-hour timeframe. Therefore, at the moment, you should stay in new sell orders with targets of 1.1780 and 1.1719 until the Heiken Ashi indicator turns up. Buy orders should be opened when fixing above the moving average line with targets of 1.1914 and 1.1963.
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.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted 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.