The GBP/USD currency pair failed to continue its upward movement for the third consecutive time on Tuesday after consolidating above the moving average line. It is worth noting that last week the pair showed significant growth, but there were hardly any solid reasons behind such a movement. Just looking at the calendar of fundamental events and the movements of the EUR/USD pair during the same period confirms this. Currently, the pound is trying to figure out its next move. It remains close to its local peaks, which are too high for its current conditions. Remember that there are no substantial reasons for it to be that high.
One of the reasons for the pound's strong rally in recent weeks could have been the oversold condition of the CCI indicator on May 11. But it has already been accounted for and worked out in this case. It's time to head down again. There were no important publications or events in the UK or the US on Tuesday. Overall, this week will have a limited number of important events and news. Therefore, the pair may continue to swing sideways. However, in the medium term, we expect it to decline in almost any case. Whether it will happen remains an open question because the market has shown us in recent months that it can buy when 80% of the factors suggest selling.
In the 24-hour timeframe, the price rebounded from a critical line, and this signal is the main hope for a decline soon. The Kijun-sen line is strong, so a decline can be expected after the rebound. Additionally, there won't be any significant reports or events soon to shift the market sentiment to "bullish" again suddenly. No matter how you look at it, the word "decline" is evident everywhere.
There is no fundamental background, only sell signals.
Regarding the fundamental background, there is nothing new to say after Tuesday. There weren't even any minor speeches from the Bank of England or Fed officials. The next Federal Reserve meeting will occur on June 13-14, so the "quiet period" has already begun. This means there will be no speeches by Fed representatives until the meeting. The same applies to BoE members. The topic of US government debt is closed. There is no news. Therefore, the pair may trade chaotically and flatly or swing back and forth over the next few weeks. Be prepared for any outcome.
By the way, the CCI indicator almost entered the overbought zone again. If that had happened, the probability of a new decline would have increased significantly. Without that, we can only wait for a decline and be wary of another illogical rally. We have already discussed the Fed rates in the article on EUR/USD; there is nothing new about the Bank of England's rates. It will undoubtedly increase by 0.25% at the next meeting, the thirteenth consecutive hike. Inflation in the UK remains high, and there is no guarantee it will slow down at the same pace as in April. Thus, the British regulator cannot ease its monetary pressure, but at the same time, the rate has already risen to 4.5%. This is not the maximum possible value. The rate could increase by another 0.25-0.5%, but GDP has remained near zero growth for three consecutive quarters. According to Andrew Bailey, each subsequent rate hike could harm the British economy, which will not enter a recession this year. But it's uncertain.
Let's mention the "head and shoulders" pattern forming between May 30 and June 6. If it is indeed forming, it provides another sell signal. Two shoulders are around the level of 1.2451. The head is around the level of 1.2543.
The average volatility of the GBP/USD pair over the past five trading days is 98 pips. For the pound/dollar pair, this value is considered "average." Therefore, on Wednesday, June 7, we expect movements between 1.2322 and 1.2518. Reversal of the Heiken Ashi indicator back upward will signal a new upward movement phase.
Nearest support levels:
S1 - 1.2421
S2 - 1.2390
S3 - 1.2360
Nearest resistance levels:
R1 - 1.2451
R2 - 1.2482
R3 - 1.2512
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair has settled below the moving average line, so short positions are currently relevant, with targets at 1.2360 and 1.2329. These positions should be held until the Heiken Ashi indicator reverses upward. Long positions can be considered if the price consolidates above the moving average line with targets at 1.2482 and 1.2512.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. The trend is strong if both channels are directed in the same direction.
Moving average line (settings 20,0, smoothed) - determines the short-term trend and the direction in which trading should be conducted.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable price channel in which the pair will move the next day based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) indicates an upcoming trend reversal in the opposite direction.