The GBP/USD currency pair continued Friday's decline on Monday and quite easily updated its previous local minimum, which was also the minimum for the last two years. The British currency was now declining to the Murray level of "-1.8" (1.1588), from which only 250 points remained to pass to 35-year lows. Nevertheless, a pullback to the top began in the second half of Monday, and we want to draw traders' attention to one important technical signal. The CCI indicator entered the oversold area yesterday (below the -250 mark). It doesn't visit oversold or overbought areas often, so this signal can be considered powerful for purchase.
Another thing is that the formation of such a signal does not give a 100% guarantee that growth will begin now. There were cases when strong fundamental or geopolitical backgrounds leveled such signals, and the fall continued. But at least we can count on a certain correction now.
Also, the CCI indicator can now build a divergent minimum. It means that the pound will update its 2-year lows one or two more times, but the CCI will no longer enter the oversold area, and each of its corresponding lows will be higher than the previous one. Such a signal is also a precursor of growth. However, we still believe that the fundamental background will defeat the technique. At least in the near future, it will be winning. It is not surprising that indicators regularly enter the oversold area on a strong downward trend, but if the trend is strong, it often persists. And now, geopolitics and the foundation remain on the dollar's side. Already next month (which will start in two days), the Fed may raise its rate again by 0.5-0.75%, but how much the Bank of England will raise the rate is still an unresolved question.
All attention is on the US labor market.
There will be no macroeconomic statistics this week in the UK at all. The business activity index alone in the second assessment of the production sector, which will be known on Thursday, is unlikely to interest traders enough to work it out. And even more so, it is unlikely to change the general mood of the market, which remains pronounced: "bearish." Thus, traders will be able to pay their attention only to American data, which will also be limited. The first report will be released only on Wednesday and will be frantic. The ADP report on changes in the number of employees in the private sector is the "younger brother" of NonFarm Payrolls and rarely provokes a market reaction. Therefore, it is possible to pay attention to it, of course, but it is unlikely that it will affect the pair's movement with the participation of the dollar.
On Thursday, another secondary report on applications for unemployment benefits will be published, as well as a rather important ISM index on business activity in the manufacturing sector. Recall that the S&P index fell to 44.1 points, and at the same time, the ISM index is above the critical level of 50.0–52.8. According to experts, it will decrease to 52.0 in August. However, we tend to think that the fall may be stronger. If this index goes below the "waterline," the dollar may be under pressure from the market.Well, on Friday, the week's key report will be released – Nonfarm Payrolls for August. According to forecasts, it will amount to 285-310 thousand new jobs, which, we recall, is a very good value. Over the past year and a half, the market has become accustomed to values above 400-500 thousand, but these are only the "consequences" of the pandemic and the strongest economic decline in 2020. The normal monthly average is +200-300 thousand. Therefore, we believe the market will perceive any value above 285K as positive. At the same time, the unemployment rate will likely remain unchanged – 3.5% and wages should add 0.4-0.5% in monthly equivalent. But, of course, the Nonfarm report will be of the greatest importance. Accordingly, frankly negative for the dollar is not expected this week.
The average volatility of the GBP/USD pair over the last five trading days is 118 points. This value is "high" for the pound/dollar pair. On Tuesday, August 30, thus, we expect movement inside the channel, limited by the levels of 1.1593 and 1.1829. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 1.1658
S2 – 1.1597
Nearest resistance levels:
R1 – 1.1719
R2 – 1.1780
R3 – 1.1841
Trading Recommendations:
The GBP/USD pair continues to be located below the moving average on the 4-hour timeframe. Therefore, it is necessary to consider options for opening new sell orders with targets of 1.1658 and 1.1597 if the Heiken Ashi indicator is reversed. Buy orders should be opened when fixing above the moving average line with targets of 1.1902 and 1.1963.
Explanations of the illustrations:
Linear regression channels – help to 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.