The GBP/USD currency pair found a new reason to continue its growth on Wednesday. As one might guess, this reason was the US inflation report. While the European currency has not grown in recent weeks, which is logical and consistent with the current fundamental background, the pound sterling continues to move northward. On Wednesday, it became known that US inflation slowed down slightly in April, which means that the Federal Reserve's monetary policy can still change. However, pound traders reacted as if inflation had dropped by 0.5%, and the issue of raising rates could now be considered closed. An hour later, the pair began to reverse downward, but it did not affect the overall picture of the situation. The pound is still overbought, still growing, and still growing groundlessly.
At the moment, all indicators point upward. Volatility has decreased in recent weeks, but what does it matter if the pound consistently increases in value? The movement is absolutely illogical and simply inertial. One might assume that the problem lies with the Bank of England and its "hawkish" monetary policy. Still, the British regulator has been raising rates at a minimal pace, with the next decision becoming known well before the meeting. The Fed continues to raise its rate, making it impossible to conclude that the BOE's policy contributes to the pound's growth.
On the 24-hour TF, the pair gradually approaches the 61.8% Fibonacci correction level. The pound has appreciated by 2300 points and still cannot properly correct. As volatility is currently low, such an upward movement is even worse executed. In other words, the pair corrects downward too often, adding a "clean" 20–30 points daily. The nature of trading in such conditions differs little from that of a flat. Despite a trending movement, we still advise extreme caution when buying, and it is best to trade on the youngest TF.
The rate decision is already known, but there is a nuance.
Two weeks ago, it became known that the Bank of England was preparing to raise the rate by 0.25%. All official forecasts, the high inflation in the UK that steadfastly refuses to go down, and the Bank of England, which just one meeting ago reduced the pace of tightening to a minimum, all supported this. The latter factor indicates that the regulator wants to complete the tightening cycle but will do so smoothly. Typically, after reducing the pace of tightening to 0.25% per meeting, three more rate hikes are expected. One has already taken place, so there may be two more. No one doubts that the rate will be raised again today, but now a completely different factor comes to the fore.
Specifically, the voting factor of the monetary committee members, of which there are nine. Traditionally, two will vote against tightening, while seven will vote for it. This voting distribution has been seen in almost all recent meetings of the BA. And if this time, three or four officials vote against tightening, it will be the maximum "dovish" factor for the pound. To make a decision, at least five votes are needed. If there are three or four "against" votes, by June, their number may grow to five or six, and the regulator will stop tightening monetary policy. Therefore, the pound will use any excuse today to show new growth, but if the number of voters against the rate hike is more than 2, the long-awaited decline may begin.
We also note that the pound has risen by 260 points over the past three weeks. 260 / 15 = 17. On average, the pound is appreciating by 17 points per day. But this is not a movement of "strong growth, then correction," but "steady growth without corrections." And such movement is extremely difficult to work with.
The average GBP/USD pair volatility for the last five trading days is 67 points. For the pound/dollar pair, this value is "average." As a result, we anticipate movement within the channel on Thursday, May 11, with levels 1.2558 and 1.2694 acting as limits. A reversal of the Heiken Ashi indicator upward signals a possible resumption of the upward movement.
Nearest support levels:
S1 - 1.2604
S2 - 1.2573
S3 - 1.2543
Nearest resistance levels:
R1 - 1.2634
R2 - 1.2665
R3 - 1.2695
Trading recommendations:
The GBP/USD pair in the 4-hour timeframe maintains an upward trend. Therefore, now you can trade for an increase with targets of 1.2665 and 1.2695 if the Heiken Ashi indicator is reversed. Short positions can be considered after overcoming the moving average, but as practice shows, such signals do not lead to a fall in the pair. Volatility is currently low, complicating the trading process.
Explanations for illustrations:
Linear regression channels - help determine the current trend. If both are directed in one direction, the trend is currently strong.
The 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 likely price channel the pair will spend the next day, 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.