FX.co ★ Overview of the GBP/USD pair on February 1, 2024

The GBP/USD currency pair stays within the sideways channel of 1.2611–1.2787 and has recently ceased attempts to break out of this range. We observed the same confusing movements within the flat throughout the past day. We do not consider movements in the evening and at night now, as the market trades on emotions after the Fed meeting. Often, we see a scenario where the pair sharply starts moving in one direction but then, within a day, returns to its initial positions. Therefore, it is not advisable to draw hasty conclusions, and opening positions based on them is even more discouraged.

In addition to the already-concluded Fed meeting, today marks the results of the first Bank of England meeting this year. No one expects a rate cut from the British regulator. Still, at the same time, there is always a possibility that the final communique or statements from Andrew Bailey will contain important information on monetary policy. Traders in the currency market usually await such information, making it capable of significantly influencing the pound's movement. The question is whether this information will suffice for the pair to exit the sideways channel.

Mr. Bailey and the monetary committee will avoid making loud forecasts and promises. Conclusions can only be drawn based on the final vote count at the key rate. It is worth recalling that the number of "hawks" may decrease at the February meeting from 3 to 2, which would be sufficient to put pressure on the pound and lead the market to conclude a softening of the BOE's "hawkish" stance. One thing can be said for sure: Bailey's current stance and the company are unlikely to become more "firm."

After all, inflation is still decreasing, and there is no reason for a new rate hike. Since the Consumer Price Index is at 2% of the target level, talking about a rate cut now needs to make more sense. Recall that inflation in the EU is much lower, but even representatives of the ECB constantly repeat that it is still time for easing. Therefore, today's Bank of England meeting will be uneventful. We will see a surge of emotions in the market; the pair may swing significantly from side to side, but everything will return to the usual course.

Yesterday, the ADP report on the number of new non-agricultural jobs was also published in the United States. This report disappointed, showing a value of only +107 thousand against a forecast of 125-145 thousand. However, it is worth noting that the ADP report has an "older brother" - Nonfarm Payrolls. This report is the primary indicator of the labor market's condition. Yesterday, we saw a small decline in the dollar, but it did not affect anything. The market's reaction took place, and that's already good, but central bank meetings are much more important, and the minimal decline in the dollar can be neutralized in a couple of hours. We observe movements of the same strength five or six times daily.

Thus, if we exclude the market's reaction to the Fed meeting, the pound sterling remains within the sideways channel, and when it will exit it is still unclear. The time spent inside it is approaching two months, which is already too long. Meanwhile, the pound continues to hover near its five-month highs, meaning it hasn't been able to correct downward significantly. We consider the fact that the British currency is so high in itself illogical. Nevertheless, the market favors the pound positively, overlooking many negative reports and events.

The average GBP/USD pair volatility for the last 5 trading days as of February 1st is 75 points. For the pound/dollar pair, this value is considered "average." On Thursday, February 1st, we expect movements within the range limited by 1.2608 and 1.2758. A reversal of the Heiken Ashi indicator upwards will indicate a new stage of 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 acts as the upper boundary of the sideways channel. However, we remind you once again that the market is currently flat, which means that movements can be multidirectional and unpredictable. The price often overcomes the moving average, so it has only a formal significance. We consider it appropriate to consider short positions with targets at 1.2634 and 1.2604 near 1.2787. Alternatively, buy near the level of 1.2610. If the pair exits the sideways channel, it is not advisable to rush to conclusions, as, on Thursday and Friday, the market may trade impulsively based on emotions from a strong fundamental background.

Explanations for illustrations:

Linear regression channels - help determine the current trend. The trend is currently strong if both are directed in the same direction.

The moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which it is currently advisable to trade.

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 zone (below -250) or the overbought zone (above +250) indicates that a trend reversal in the opposite direction is approaching.