The GBP/USD currency pair on Thursday was far from the most volatile movements. Volatility reached 107 points, a value considered "moderate" for the pound. The average value for the last five days is 81 points. The average value for the last 30 days is 91 points. Yesterday, the pair showed even higher volatility than the average for the week and month. And this is despite the fact that there was an excess of important macroeconomic publications. The dollar, of course, rose after the publication of American reports, but it rose at the moment, and by the end of the day, it fell again. The pair remained above the moving average line, hovering close to its local and annual peaks. It has yet to undergo a substantial downward correction and is overbought.
Thus, we can draw the same conclusions as before. The inertial upward trend continues. The market buys the pound simply because it is getting more expensive. The fundamental and macroeconomic background is of secondary importance. Strong data in favor of the dollar can only provoke its slight strengthening. The pound can appreciate even without news support.
It might appear to some that the pound undergoes frequent and significant corrections. However, we recommend examining the 24-hour timeframe (TF) to understand how the pound has adjusted since it started its ascent last September. Over this period, the British currency gained 2500 points, with the maximum correction being 600. The market focuses solely on buying, with infrequent and modest corrections merely serving as partial profit-taking on long positions.
John Williams supported the "pause" at the last Fed meeting. On Wednesday, the minutes of the last Fed meeting became known. As it turned out, some monetary committee members supported a new rate hike but were in the minority. Overall, bankers support two more rate hikes in 2023. Yesterday was the speech of the head of the New York Fed, John Williams, who has the right to vote this year. He noted that he voted against a rate hike in June but plans to vote for tightening monetary policy in the future. But everything will depend on the incoming data.
At the moment, Mr. Williams is unsatisfied with the inflation size and concedes that two more rate hikes may be necessary. He stated that the inflation trajectory is downward, and a "restrictive" monetary policy underpins consumer price expectations. "Demand and supply are still not completely balanced. We have a lot of work ahead," believes Jerome Powell's deputy.
Williams also noted a strong labor market and high demand for the labor force, which allows the Fed to continue raising the key rate. However, his address, much like those delivered by several colleagues in the past, did not cause any significant stir. Most remarks primarily emphasized the persistently high inflation and suggested that it is still time to terminate the tightening monetary policy cycle. The market has long since become indifferent to the Fed's rate hikes. Instead, the largely unknown plans of the Bank of England have become the primary point of interest.
Representatives of the BoE rarely communicate with the press and the media, so it is impossible to predict which way the British regulator is currently looking. A few months ago, it seemed that it was close to ending tightening, but in June, the rate sharply rose by 0.5%, which shows the "party's" readiness to continue raising. Formally, the British economy has not slipped into a recession. Theoretically, the Bank of England can raise the rate until GDP reports exceed zero. However, the impact of policy tightening is long-term. The effect can be observed for a year and a half. Therefore, each subsequent rate hike is a risk of recession next year. And then the economy will need to be stimulated again. Inflation, however, is in no hurry to fall to 2%. The BoE may need a lot of time.
The average GBP/USD pair volatility for the last five trading days is 81 points. For the pound/dollar pair, this value is "average." Therefore, on Friday, July 7, we expect movement within the range limited by levels 1.2657 and 1.2819. A reversal of the Heiken Ashi indicator downwards will signal a new attempt to correct it.
Nearest support levels:
S1 – 1.2726
S2 – 1.2695
S3 – 1.2665
Nearest resistance levels:
R1 – 1.2756
R2 – 1.2787
R3 – 1.2817
Trading recommendations:
The GBP/USD pair on a 4-hour timeframe remains above the moving average. Long positions with targets of 1.2787 and 1.2817 remain relevant, which should be held until the Heiken Ashi indicator reverses downwards. Short positions can be considered if the price is consolidated below the moving average with targets of 1.2665 and 1.2634.
Explanation of illustrations:
Linear regression channels - help to determine the current trend. If both are directed in one direction, the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and 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 the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.