The GBP/USD pair continued to rise on Friday, contrasting with EUR/USD, which remained stagnant. Once again, the pound sterling exhibits greater resilience than the euro under nearly identical fundamental and macroeconomic conditions. This pattern has been consistent throughout 2024, with the pound rising more readily and falling less dramatically than the euro. While this resilience is impressive, it does not negate the pound's eventual need to decline further.
On Friday, U.S. labor market data were the primary market driver. Traders eagerly awaited the NonFarm Payrolls (NFP) and unemployment rate reports. Once published, the market initially struggled to interpret them. NFP data exceeded expectations for November and October, which was positive for the dollar. However, the unemployment rate increased to 4.2%, worse than the forecasted stability. Consequently, the dollar neither appreciated nor depreciated significantly, leaving the market unchanged by day's end.
The upcoming week in the UK offers little in the way of significant events. The first and only reports of note will be published on Friday, and even these are relatively minor. The GDP report will only cover monthly data, not quarterly. This report will likely reinforce the view that the British economy remains weak and needs support through Bank of England rate cuts. However, such cuts would further weaken the pound. Industrial production data is also unlikely to draw much attention.
In contrast, the U.S. has a more eventful week ahead. The most critical release is Wednesday's inflation report. Given its timing before the Federal Reserve's final meeting of the year, this data could have significant implications. Though the market remains skeptical, Jerome Powell and several colleagues have hinted at the possibility of a December pause. Labor market reports indicate stability, suggesting no need to ease monetary policy. If inflation accelerates to 2.7%-2.8% in November, as forecasted, it would provide a strong argument against cutting rates at the December meeting. This scenario would give the dollar a new boost against its competitors.
Even with just one major U.S. report, the week could be more impactful than the last. Technically, the pound continues its upward correction, aligning with expectations. The market appears to be gathering momentum for the next leg of the downtrend.
The average volatility of GBP/USD over the past five trading days is 85 pips, categorized as "average." For Monday, December 9, we expect the pair to trade within the range of 1.2655 to 1.2825. The higher linear regression channel is directed downwards, which signals a downtrend. The CCI indicator has displayed multiple bullish divergences and entered oversold territory several times. While the correction is underway, its strength remains uncertain.
Trading Recommendations:The GBP/USD pair maintains a downward trend within a corrective phase. We do not currently recommend long positions, as we believe the market has already priced in the factors supporting the pound's growth multiple times. If you trade on the "pure" technique, long positions may be considered only if the price remains above the moving average, with targets at 1.2817 and 1.2835. Short positions remain more relevant, targeting 1.2573, especially if the price consolidates below the moving average.
Explanation of Illustrations:Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.