The GBP/USD currency pair sharply collapsed on Friday. We have already discussed the reasons in previous articles, so we will refrain from repeating ourselves. We must pay increased attention to technical analysis, which we will do. The first thing to notice is the slowdown in the growth rate of the British pound. This is visible in the illustration above. The upward movement is now weaker, and corrections are becoming slightly stronger. This does not mean the upward trend is over, but the bulls are weakening their grip. And this is logical because the pound has grown more than 700 points in a month without significant corrections. The second point is the fundamental background, according to which the Bank of England has slowed down the pace of monetary policy tightening. This should not happen now if the pound has grown in the last month due to the divergence of the Fed and BoE rates. The third point is the need to correct, even if the upward trend is maintained. If the pair continues to grow, it turns out that it will grow by about 1,000 points (if not more, even without correcting). For movements of such strength, very good reasons are needed, which are unavailable.
Since traders have no basis to continue buying, they may start to fix profits on long positions. And on the 24-hour TF, the pair is still inside the sideways channel 1.1840–1.2440. There was a slight consolidation above it, but it was too weak to put an end to the flat. And if the flat is maintained, we are now waiting for a fall to the level of 1.1840, which will be logical in all aspects of any analysis.
The Fed has yet to make significant progress in reducing inflation.
Meanwhile, on Friday, Christopher Waller, one of the members of the Fed's monetary committee, spoke. He stated that the key rate should continue to rise as the regulator has not significantly reduced inflation. The scale of further monetary policy tightening will depend on incoming macroeconomic data, Waller said. He noted that the Fed does not yet know how the collapse of three large banks in the United States will affect lending. There are concerns that volumes will decrease, leading to additional cooling of the economy and lower inflation. At the same time, this will negatively affect economic growth, which also needs to be considered. It is worth noting that the United States does not expect a strong recession, but a decline in economic growth may be observed closer to the end of the year. Waller also noted that the rate should remain high for an extended period, longer than the markets currently calculate. He also highlighted strong labor market data for the first quarter.
In principle, Waller stated what we have already said earlier. The US economy is in excellent condition, and, despite the 5% rate increase, GDP continues to grow. The labor market shows good monthly figures, and unemployment has remained at a minimum for the last 50 years. This means the Fed has a free hand regarding the key rate. It can be raised even to 6%. We also see that the Fed does not rely on the long-term effect of monetary policy tightening and prefers to achieve a return of inflation to 2% in the shortest possible time. And when inflation approaches the target level, it will begin to soften monetary policy. They are counting on a long-term effect in the European Union and the United Kingdom. Thus, the "hawkish" rhetoric of the Fed remains, and the dollar generally continues to fall, which is again illogical.
The average GBP/USD pair volatility for the last five trading days is 96 points. For the pound/dollar pair, this value is considered "average." On Friday, April 16, we thus expect movement within the channel limited by 1.2315 and 1.2507. The reversal of the Heiken Ashi indicator back upwards will signal a possible resumption of the upward movement.
Nearest support levels:
S1 – 1.2390
S2 – 1.2360
S3 – 1.2329
Nearest resistance levels:
R1 – 1.2421
R2 – 1.2451
R3 – 1.2482
Trading recommendations:
The GBP/USD pair in the 4-hour timeframe has consolidated below the moving average line. You can stay in short positions with targets of 1.2360 and 1.2315 until the Heiken Ashi indicator turns upward. Long positions can be considered if the price consolidates above the moving average, with targets of 1.2512 and 1.2543.
Explanations for illustrations:
Linear regression channels - help determine the current trend. If both are directed in one direction, 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.
Murrey levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable price channel in which the pair will spend the next 24 hours, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) means a trend reversal in the opposite direction is approaching.