On Wednesday, the GBP/USD currency pair secured itself above the moving average line. However, this does not mean any strong conclusions should be drawn, as the pound has been trading in a sideways channel for several weeks, which is evident even during the 4-hour timeframe. Therefore, we can speak of any trend movement once it exits this channel. We can observe strong upward or downward movements, but they are within the sideways channel. It is hard to say whether the British pound is ready to continue falling. Logically, correcting upwards a little now and then resuming its fall would be a good idea. However, based on the fundamental and macroeconomic background in the medium term, we still see no reason for the pair to rise.
The British pound has risen for almost a year and has gained nearly 3,000 points. We have repeatedly said that macroeconomics and fundamentals support the dollar more than the pound in 2023, at least. The Bank of England is raising rates much faster than the ECB, giving an advantage to the British currency over the euro, but does it give it an advantage over the dollar if the Fed's rate is rising even more? We have long spoken about the inertial trend, and the pound has risen because it was being bought. And people could be buying based on the belief in the endless tightening of the Bank of England's monetary policy, as inflation, even according to the latest report, is falling very slowly, and core inflation is not falling at all.
Looking at the 24-hour timeframe, it becomes clear again that we have yet to see a proper correction downwards. The price has dropped to the lower border of the Ichimoku cloud, but this cloud has been at a minimal distance from the price all through 2023. From time to time, we see weak pullbacks, and then the pound starts appreciating again. We hope this time, there will be no repetition of this scenario.
The Fed's minutes preserved the market's hawkish expectations.
Yesterday evening, the Fed minutes from the July meeting were published. We usually take a skeptical view of this document because it rarely contains information unknown to the market. Yesterday was, in principle, the same. We can only highlight that at the last Fed meeting, not all monetary committee members supported a rate hike. Still, most see increasing inflationary risks and believe that monetary policy tightening cannot be concluded now. The latest inflation report showed us just that. Although inflation grew slightly, it did grow for the first time in 14 months. Therefore, if the August value is not positive, we can expect another rate hike by the Fed in September, even without a pause.
The Federal Reserve will raise the rate in 2023 simply because it can afford it. The economy continues to grow, the unemployment rate is minimal, and the labor market is cooling down, but not enough to sound the alarm and abruptly end the tightening cycle. Therefore, the rate can increase once or twice more. Especially in favor of this is the fact that the U.S. regulator is not ready to "prolong the pleasure" over the long years, as in the European Union or the United Kingdom.
The average volatility of the GBP/USD pair over the last five trading days is 95 points. For the pound/dollar pair, this value is considered "average." Therefore, on Thursday, August 17th, we expect the movement within the range limited by levels 1.2640 and 1.2830. The reversal of the Heiken Ashi indicator back upwards will signal the start of an upward movement within the sideways channel.
Nearest support levels:
S1 – 1.2695
S2 – 1.2665
S3 – 1.2634
Nearest resistance levels:
R1 – 1.2726
R2 – 1.2756
R3 – 1.2787
Trade recommendations:
The GBP/USD pair in the 4-hour timeframe has settled above the moving average, but overall we have a flat market. You can now trade on the rebound from the sideways channel's upper (1.2787) or lower (1.2634) boundaries. The moving average may be breached very often, which does not indicate a change in the trend.
Explanations of the illustrations:
Linear regression channels - help to determine the current trend. If both point in the same direction, the trend is currently strong.
Moving average line (settings 20, 0, smoothed) - determines the short-term trend and the direction in which trade should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the probable price channel in which 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.