GBP/USD. Overview for August 10th. The decline in GDP in the second quarter may prompt the Bank of England to take a pause
August 10, 2023 10:24 am
On Wednesday, the GBP/USD currency pair rebounded from the moving average for the third consecutive time and began a new downward trend. The movement of the GBP/USD in recent days resembles a flat trend, which is much more visible in the 1h timeframe and below. For instance, the pair cannot consolidate above the moving average and below the Murrey level of “0/8”-1.2695. These two lines can serve as boundaries for the sideways channel. Even the CCI indicator is positioned precisely in the middle of its level grid, indicating a complete balance in the market.
So, what can we expect from the pair? First, we need the flat trend to end, as trading within it is profitable only on the smallest timeframes. Second, we need to see the figures from two reports: US inflation and UK GDP. We’ve mentioned that inflation data is one of the most crucial for the market. Hence, it can trigger significant movement today. Naturally, predicting the direction of the pair or the actual Consumer Price Index (CPI) value in advance is impossible.
The British economy is slowly moving towards a recession. The same applies to tomorrow’s GDP report. The UK’s economy has stagnated for four consecutive quarters, meaning it has yet to grow or decline for a year. However, the Bank of England’s key rate has been rising constantly. Therefore, with each passing month, there’s an increasing likelihood of the UK’s economy not just stagnating but declining. A declining economy may force the British regulator to avoid further rate hikes. However, this is less relevant now since the Bank of England’s rate is already 5.25%. There needs to be more room for growth. A 0.2-0.3% decline in economic growth in a particular quarter wouldn’t be a strong signal for the Bank of England of a recession, as they consider yearly growth figures.
In conclusion, a drop in GDP won’t be a critical moment for the pound, as it won’t divert the Bank of England from its monetary tightening path. Meanwhile, the market might have already priced in all future rate hikes. If the Bank of England doesn’t signal a willingness to raise the rate to 6.5-7.0% (which would be logical given the current inflation rate), we don’t see any reason for a robust appreciation of the British currency. Consequently, regardless of the US inflation and UK GDP reports, we expect a decline in the British pound. On the 24-hour timeframe, the target remains the same – the Senkou Span B line.
The average GBP/USD pair volatility for the last five trading days stands at 96 points. For the pound/dollar pair, this value is “average.” On Thursday, August 10, we expect movement within the range bounded by the 1.2620 and 1.2812 levels. A reversal of the Heiken Ashi indicator back upwards will signal a new corrective phase.
Support Levels:
S1 – 1.2695
S2 – 1.2634
S3 – 1.2573
Resistance Levels:
R1 – 1.2756
R2 – 1.2817
R3 – 1.2878
Trading Recommendations:
In the 4-hour timeframe, the GBP/USD pair continues to trade below the moving average. Short positions targeting 1.2695 and 1.2634 remain relevant, and these should be held open until the Heiken Ashi indicator reverses upwards. Long positions can be considered if the price consolidates above the moving average, with targets at 1.2817 and 1.2878. A continuation of the sideways trend (flat) is also possible now.
Notes on Illustrations:
Linear Regression Channels help determine the current trend. It indicates a strong trend if both are pointed in the same direction.
Moving Average Line (settings 20.0, smoothed) determines the short-term trend and the direction in which trading should be conducted.
Murrey Levels are target levels for movements and corrections.
Volatility Levels (red lines) indicate the probable price channel within which the pair will trade in the upcoming day based on current volatility indicators.
CCI Indicator – when it enters the oversold area (below -250) or the overbought area (above +250), it suggests an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
On Wednesday, the GBP/USD currency pair rebounded from the moving average for the third consecutive time and began a new downward trend. The movement of the GBP/USD in recent days resembles a flat trend, which is much more visible in the 1h timeframe and below. For instance, the pair cannot consolidate above the moving average and below the Murrey level of “0/8”-1.2695. These two lines can serve as boundaries for the sideways channel. Even the CCI indicator is positioned precisely in the middle of its level grid, indicating a complete balance in the market.
So, what can we expect from the pair? First, we need the flat trend to end, as trading within it is profitable only on the smallest timeframes. Second, we need to see the figures from two reports: US inflation and UK GDP. We’ve mentioned that inflation data is one of the most crucial for the market. Hence, it can trigger significant movement today. Naturally, predicting the direction of the pair or the actual Consumer Price Index (CPI) value in advance is impossible.
The British economy is slowly moving towards a recession. The same applies to tomorrow’s GDP report. The UK’s economy has stagnated for four consecutive quarters, meaning it has yet to grow or decline for a year. However, the Bank of England’s key rate has been rising constantly. Therefore, with each passing month, there’s an increasing likelihood of the UK’s economy not just stagnating but declining. A declining economy may force the British regulator to avoid further rate hikes. However, this is less relevant now since the Bank of England’s rate is already 5.25%. There needs to be more room for growth. A 0.2-0.3% decline in economic growth in a particular quarter wouldn’t be a strong signal for the Bank of England of a recession, as they consider yearly growth figures.
In conclusion, a drop in GDP won’t be a critical moment for the pound, as it won’t divert the Bank of England from its monetary tightening path. Meanwhile, the market might have already priced in all future rate hikes. If the Bank of England doesn’t signal a willingness to raise the rate to 6.5-7.0% (which would be logical given the current inflation rate), we don’t see any reason for a robust appreciation of the British currency. Consequently, regardless of the US inflation and UK GDP reports, we expect a decline in the British pound. On the 24-hour timeframe, the target remains the same – the Senkou Span B line.
The average GBP/USD pair volatility for the last five trading days stands at 96 points. For the pound/dollar pair, this value is “average.” On Thursday, August 10, we expect movement within the range bounded by the 1.2620 and 1.2812 levels. A reversal of the Heiken Ashi indicator back upwards will signal a new corrective phase.
Support Levels:
S1 – 1.2695
S2 – 1.2634
S3 – 1.2573
Resistance Levels:
R1 – 1.2756
R2 – 1.2817
R3 – 1.2878
Trading Recommendations:
In the 4-hour timeframe, the GBP/USD pair continues to trade below the moving average. Short positions targeting 1.2695 and 1.2634 remain relevant, and these should be held open until the Heiken Ashi indicator reverses upwards. Long positions can be considered if the price consolidates above the moving average, with targets at 1.2817 and 1.2878. A continuation of the sideways trend (flat) is also possible now.
Notes on Illustrations:
The material has been provided by InstaForex Company – www.instaforex.com
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