The GBP/USD currency pair also collapsed on Wednesday evening. However, on Thursday morning, the recovery began, which now causes laughter, and that's all. Immediately, it should be noted that the growth of the British currency was observed before the announcement of the results of the meeting of the Bank of England. That is, we may reasonably assume that it was not related to the results of the meeting but was a residual reaction of the market to the results of the Fed meeting. In other words, traders rushed to repurchase the US currency after the Fed raised the rate by another 0.75% and promised to raise it twice more this year, most likely also by 0.75%, and then there was a slight upward pullback, purely technical. The results of the meeting of the Bank of England, at which a 0.5% rate increase was announced, were ignored since even the pair's volatility did not grow to those values to indicate the presence of a reaction. It is unlikely that a movement of 50-60 points is what we expected from the market after the meeting of the British regulator.
Thus, the pound/dollar pair continues to be located below the moving average line, and both linear regression channels are still directed downward. Unfortunately, the overall situation remains negative for risky currencies. Moreover, even more so, not because of the divergence between the BA and the Fed rates but because of the greatly worsened geopolitics this week. With the stakes, by and large, everything is clear. The British pound fell perfectly in 2022, although the Bank of England was the first to raise its rate and has done so seven times in a row, and at the last two meetings, it has already increased by 0.5%.
Nevertheless, the pound is only being sold by market participants, and the dollar is only being bought. Therefore, another increase in the BA rate did not play any role in the balance of power between the dollar and the pound. Moreover, the divergence between them again increased by 0.25%. Therefore, we believe that the "foundation" + geopolitics = a new fall in the pound. To what value it may fall, hardly anyone can predict. If someone had said at the beginning of the year that the pound would cost less than $1.13, then probably no one would have taken such a forecaster seriously. However, we can see how much geopolitics and the "foundation" influence the market's mood.
The Bank of England also announced the launch of the QT program.
The next increase in the key rate is already causing the market to yawn openly. The central bank of Great Britain announced a reduction in the number of bonds on its balance sheet over the next year by 80 billion pounds. We cannot say that this will have a big and drastic impact on the economy and the position of the British pound. At the same time, the Fed will reduce the money supply by $3 trillion over the next three years and has already started implementing the plan. As we can see, in this matter, the Fed is in the first place and provides strong support to the dollar with all its actions.
It should also be noted that the vote for the BA rate increase was not unanimous. More precisely, all nine monetary committee members were "in favor" of tightening monetary policy, but only five voted for 0.5%. Three – for 0.75%, and one – for 0.25%. Thus, the bid could have grown even stronger, but a few votes were insufficient. It's a pity (for the pound), as it could have saved it from a new fall. The salvation of the pound now lies in easing geopolitical tensions (which can hardly be expected in the coming months) and reducing the divergence between rates. But, as we can see, neither the first nor the second even "smells." One could assume that the pound's fall will end for technical reasons, but we do not have a single buy signal on any of the timeframes. The pound still can't even really adjust, so why now expect the downward trend to end if there is not a single signal for an upward movement, but there are a lot of signals for a new fall? At this rate, the British pound will follow in the euro's footsteps and fall in price to price parity.
The average volatility of the GBP/USD pair over the last five trading days is 119 points. This value is "high" for the pound/dollar pair. On Friday, September 23, thus, we expect movement inside the channel, limited by the levels of 1.1143 and 1.1380. The reversal of the Heiken Ashi indicator downwards signals the resumption of the downward movement.
Nearest support levels:
S1 – 1.1230
S2 – 1.1169
S3 – 1.1108
Nearest resistance levels:
R1 – 1.1292
R2 – 1.1353
R3 – 1.1414
Trading Recommendations:
The GBP/USD pair continues its downward movement in the 4-hour timeframe. Therefore, at the moment, it is necessary to open new sell orders with targets of 1.1169 and 1.1143 in case of a reversal of the Heiken Ashi indicator. Buy orders should be opened when fixed above the moving average with targets of 1.1475 and 1.1536.
Explanations of the illustrations:
Linear regression channels – help determine the current trend. The trend is strong if both are directed in the same direction.
The moving average line (settings 20.0, smoothed) identifies the short-term trend and the direction in which trading should be conducted now.
Murray levels are target levels for movements and corrections.
Based on current volatility indicators, volatility levels (red lines) are the likely price channel in which the pair will spend the next day.
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.