FX.co ★ Overview of the GBP/USD pair. June 21. The pound is falling before the Bank of England meeting, as the rate hike has already been taken into account

The GBP/USD currency pair displayed higher volatility on Tuesday than the EUR/USD pair, likely due to Thursday's upcoming Bank of England meeting. The British regulator will raise the interest rate by 0.25%, marking the thirteenth consecutive tightening of monetary policy. Since this decision has been known since the previous meeting and the pound has experienced significant growth recently, it can be assumed that the anticipated rate hike has already been considered. As the meeting approaches, there is a higher likelihood of profit-taking on recently opened long positions based on the expectation of further tightening monetary policy in the UK.

Contrary to many experts, the British pound has already factored in all potential bullish factors. The pound's increase of 2500 points over the past 10 months speaks for itself. Considering Britain's absence of significant positive events during this period, the pound has already surpassed all growth rate records. It's worth noting that the British pound is currently the top-performing currency in 2023 among developed economies, despite the British economy teetering on the brink of recession for four consecutive quarters. Representatives from the Bank of England and the government consistently ensure that a recession will be avoided and the economy remains stable. However, their statements are increasingly doubted as the key interest rate rises while inflation remains excessively high. Today, an inflation report will be released in the UK, which may clarify the situation.

Inflation can have a negative impact on the pound. Currently, the market expects a slight slowdown in inflation for May, ranging from 0.2% to 0.3% annually, which is minimal. If the slowdown is faster, it won't significantly affect the pound as the Consumer Price Index (CPI) will remain unreasonably high. Conversely, if the slowdown is less pronounced, it would indicate a longer-lasting decline that could have a more detrimental effect on the British economy and the central bank. A slight decline or absence would not likely increase the likelihood of an extended period of tight monetary policy. However, the market's interpretation of the report's significance is still being determined. It's important to remember that the market consists of numerous participants who base their transactions solely on fundamental factors. Hence, the pound may continue to rise even when most factors work against it.

The market's interpretation of the report remains uncertain. A weak decline in inflation would be seen as an additional reason to expect another rate hike in 2023, leading to further appreciation of the pound. On the other hand, a more significant decline in inflation may be viewed as negative since it could prompt the Bank of England to end the tightening cycle earlier than planned and sell the pound. In current circumstances, predicting the exact inflation value or the market's reaction is impossible.

Therefore, the GBP/USD pair may experience high volatility on Wednesday, Thursday, and Friday due to the inflation report, Jerome Powell's speeches in Congress and the Senate, and the Bank of England meeting. The pair's direction may frequently change, carrying the risk of trade losses. It's crucial to pay close attention to all these events and trade cautiously, using stop-loss orders. We still expect the pound to decline in the medium term, but the current upward momentum can push the pair to new heights. Currently, there are no sell signals.

The average volatility of the GBP/USD pair over the past five trading days is 93 pips, considered "average" for this pair. Therefore, on Wednesday, June 21, movements within the range of 1.2671 and 1.2857 are expected. A reversal of the Heiken Ashi indicator upwards will indicate a resumption of the upward movement.

The nearest levels of support are as follows:

S1 - 1.2756

S2 - 1.2695

S3 - 1.2634

The nearest levels of resistance are as follows:

R1 - 1.2817

R2 - 1.2878

R3 - 1.2939

Trading recommendations:

In the 4-hour timeframe, the GBP/USD pair initiated a correction. Currently, it is advisable to consider opening long positions with targets at 1.2817 and 1.2857 if there is a reversal indicated by the Heiken Ashi indicator moving upwards. Conversely, short positions can be contemplated if the price consolidates below the moving average, aiming for targets at 1.2634 and 1.2573.

Explanations for the illustrations:

Linear regression channels aid in determining the present trend. It suggests a strong trend if both channels are aligned in the same direction.

The moving average line (with settings of 20.0, smoothed) determines the short-term trend and guides the trading direction.

Murray levels serve as target levels for movements and corrections.

Volatility levels (red lines) indicate the probable price channel within which the pair is expected to move in the next 24 hours based on current volatility indicators.

The CCI indicator provides insight into potential trend reversals in the opposite direction when it enters the oversold area (below -250) or overbought area (above +250).