The currency pair GBP/USD continues to stay within the sideways channel of 1.2611-1.2787 and has even stopped attempting to break out of this range lately. In other words, while we regularly observed testing the upper or lower boundaries of the sideways channel (which allowed trading within the flat range), now we don't see any of that. The price has been in the middle of the sideways channel for over a week and shows no qualms about it.
On Monday, the movement of the GBP/USD pair remained unchanged. There was no fundamental or macroeconomic background, and the market had to wait for the Federal Reserve and Bank of England meetings, await the US labor market statistics, and anticipate the ISM index. Meanwhile, the market continues to speculate (probably over a cup of coffee) on the Fed's decision in March. There are no questions about the January meetings of the Fed and the BoE; market participants are confident that rates will remain unchanged.
However, opinions on the March meeting are split approximately 50/50. Recall that initially (a month ago), the market believed that the first round of monetary policy easing would occur in March (although there were no macroeconomic grounds for this, especially at that time). Then, the probability of such an outcome decreased to about 40% a week ago. According to the FedWatch tool, the probability of a rate cut is 48.6%, and the probability of maintaining the rate is 50.4%. Another 1% of experts believe the rate will be cut by 0.5% immediately.
Thus, this is precisely where the Fed could present a surprise. We lean towards the view that the first cut will not happen before May or later. The US economy continues to grow quickly, there are no problems with the labor market, and overall macroeconomic statistics are very respectable. Why should the Fed rush to ease when inflation has recently risen to 3.4% y/y?
Of course, by the end of January and February, it may slow down significantly, and then the first cut may be possible in March. However, people have yet to determine the inflation data for the first two months of 2024. The overall trend is crucial here, judging the pace of the consumer price index's slowdown based on it. And the trend now is that there has been virtually no slowdown in the last six months. Again, why should the US regulator rush to lower rates if nothing threatens the economy (especially a recession)?
Nevertheless, it is important to us how the market will interpret any Fed decision. Traders need to understand Jerome Powell's statements. The dollar may come under new pressure if they see or hear a hint of an earlier easing. However, on Thursday, the Bank of England's meeting (or rather, its conclusion) will take place, and it will also be of great importance for the prospects of the GBP/USD pair.
It is very difficult to say what can be expected from the British regulator now. It will start lowering the rate last, but lately, there have been more and more reports that it may carry out the first round of easing in the summer. If this information is confirmed, the pound will already be under pressure. At least we want to believe this, as in the last 4-5 months, the market refuses to sell the British currency.
The average volatility of the GBP/USD pair for the last five trading days is 79 points. For the pound/dollar pair, this value is considered "average." On Tuesday, January 30th, we expect movement within the range limited by the levels of 1.2604 and 1.2762. A reversal of the Heiken Ashi indicator upwards will indicate a new upward movement within the sideways channel.
Nearest support levels:
S1 – 1.2665
S2 – 1.2634
S3 – 1.2604
Nearest resistance levels:
R1 – 1.2695
R2 – 1.2726
R3 – 1.2756
Trading recommendations:
The GBP/USD currency pair is likely to resume movement towards the level of 1.2787, which serves as the upper boundary of the sideways channel. However, we remind you that the market is flat, meaning movements can be diverse and unpredictable. The price often overcomes the moving average, so it has a formal character. We consider it reasonable to consider short positions with targets at 1.2634 and 1.2604 near the level of 1.2787, but clear sell signals are needed, which are currently absent. As well as buy signals.
Explanations for illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, the trend is strong.
The moving average line (settings 20.0, smoothed) - determines the short-term trend and 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 spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) indicates that a trend reversal in the opposite direction is approaching.