GBP/USD. Overview for May 10. Inflation in the US is more important for traders than the Bank of England’s rate decision
May 10, 2023 6:23 am
On Tuesday, the GBP/USD currency pair also tried to show a downward movement, but it turned out to be so sluggish that it doesn’t even make sense to talk about it. Even if the price overcomes the moving average line, it will not mean a further decline in the British currency. Unlike the euro, which makes more conscious attempts to end the upward trend, the pound sterling continues to rise confidently. However, it has even fewer reasons to do so than the euro. Recall that the Fed raised the rate by another 0.25% last week, and a weak inflation report today may lead to another tightening in 2023. Someone may say that the market had already made all the Fed’s decisions long before they were announced. But in this case, all the Bank of England’s decisions on the rate should have been worked out. The market had plenty of time for that. How else can we explain the last round of growth of the British currency by 870 points if not by the Bank of England’s policy?
But again, we warn traders: at least six of the last price fixings below the moving average have yet to even lead to a small drop in the pair. Where is the guarantee that the seventh will? The sentiment on the pound remains “bullish,” so we may see a new round of growth. Market participants still use any excuse to open new long positions, and on Thursday, the Bank of England is likely to raise the rate by another 0.25%. Why not a reason for new purchases, although traders have had enough time to make this decision in advance?
But Andrew Bailey may state that the rate will grow stronger and longer as inflation declines extremely slowly and remains above 10%. We do not believe in such an option and do not manage the Bank of England. So anything is possible. The pound may appreciate even more if the “hawkish” sentiment intensifies. And any macroeconomic background from the US, even the most optimistic, will only matter a little. We must wait until the market becomes saturated with purchases and begins to fix profits on them.
The fragile and shaky position of the US currency
For the US currency in the near future, it will be very important not to receive new “blows of fate” in the form of bankruptcies or the absence of a decision on the government debt limit. The problem, which a few weeks ago did not look like a problem, is developing. Congress still needs to agree on an increase in the limit to $1.5 trillion. Recall that the lower house is controlled by Republicans and the upper house – by Democrats. Therefore, there is no other option but to negotiate. Naturally, Democrats are pushing for an increase in the limit, and Republicans are demanding that they reduce spending in the future and reduce the national debt, which has been growing like yeast in recent years. In America, such a situation is normal. Even in some European countries, government debt has risen to 100% of GDP. The crisis and the pandemic have done their job.
“Bank collapse” in the US cannot yet be considered complete, as the Fed rate has risen again. High rates for banks are like a blow below the belt. During the highest rate in the US, several large banks went bankrupt. The rate has risen even more since then, so we can expect new collapses. It should be noted that problems in the banking sector are not only observed in the US. A large bank with over a century of history also went bankrupt in the European Union. But the market now only sees negativity from America, so news of new liquidity problems across the ocean can quickly resolve the controversial situation in favor of the dollar. Both pairs are now at the point where a downward trend may begin to emerge, but any negative news can quickly neutralize these intentions and plans.
The average volatility of the GBP/USD pair over the last five trading days is 77 points. For the pound/dollar pair, this value is “average.” Therefore, on May 10, we anticipate movement within channels 1.2542 and 1.2696. A reversal of the Heiken Ashi indicator upwards will signal a possible resumption of the upward movement.
Nearest support levels:
S1 – 1.2573
S2 – 1.2512
S3 – 1.2451
Nearest resistance levels:
R1 – 1.2634
R2 – 1.2695
R3 – 1.2756
Trade recommendations:
The GBP/USD pair in the 4-hour timeframe maintains an upward trend. Sideways movement may resume, but now it is possible to trade with targets of 1.2695 and 1.2756 in case of a reversal of the Heiken Ashi indicator upwards. Short positions can be considered after overcoming the moving average, but as practice shows, such signals do not lead to a drop in the pair.
Explanation of illustrations:
Linear regression channels – help determine the current trend. If both are directed in one direction, the trend is strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction to trade now.
Murrey levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel 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) means a trend reversal in the opposite direction is approaching.
The material has been provided by InstaForex Company – www.instaforex.com
On Tuesday, the GBP/USD currency pair also tried to show a downward movement, but it turned out to be so sluggish that it doesn’t even make sense to talk about it. Even if the price overcomes the moving average line, it will not mean a further decline in the British currency. Unlike the euro, which makes more conscious attempts to end the upward trend, the pound sterling continues to rise confidently. However, it has even fewer reasons to do so than the euro. Recall that the Fed raised the rate by another 0.25% last week, and a weak inflation report today may lead to another tightening in 2023. Someone may say that the market had already made all the Fed’s decisions long before they were announced. But in this case, all the Bank of England’s decisions on the rate should have been worked out. The market had plenty of time for that. How else can we explain the last round of growth of the British currency by 870 points if not by the Bank of England’s policy?
But again, we warn traders: at least six of the last price fixings below the moving average have yet to even lead to a small drop in the pair. Where is the guarantee that the seventh will? The sentiment on the pound remains “bullish,” so we may see a new round of growth. Market participants still use any excuse to open new long positions, and on Thursday, the Bank of England is likely to raise the rate by another 0.25%. Why not a reason for new purchases, although traders have had enough time to make this decision in advance?
But Andrew Bailey may state that the rate will grow stronger and longer as inflation declines extremely slowly and remains above 10%. We do not believe in such an option and do not manage the Bank of England. So anything is possible. The pound may appreciate even more if the “hawkish” sentiment intensifies. And any macroeconomic background from the US, even the most optimistic, will only matter a little. We must wait until the market becomes saturated with purchases and begins to fix profits on them.
The fragile and shaky position of the US currency
For the US currency in the near future, it will be very important not to receive new “blows of fate” in the form of bankruptcies or the absence of a decision on the government debt limit. The problem, which a few weeks ago did not look like a problem, is developing. Congress still needs to agree on an increase in the limit to $1.5 trillion. Recall that the lower house is controlled by Republicans and the upper house – by Democrats. Therefore, there is no other option but to negotiate. Naturally, Democrats are pushing for an increase in the limit, and Republicans are demanding that they reduce spending in the future and reduce the national debt, which has been growing like yeast in recent years. In America, such a situation is normal. Even in some European countries, government debt has risen to 100% of GDP. The crisis and the pandemic have done their job.
“Bank collapse” in the US cannot yet be considered complete, as the Fed rate has risen again. High rates for banks are like a blow below the belt. During the highest rate in the US, several large banks went bankrupt. The rate has risen even more since then, so we can expect new collapses. It should be noted that problems in the banking sector are not only observed in the US. A large bank with over a century of history also went bankrupt in the European Union. But the market now only sees negativity from America, so news of new liquidity problems across the ocean can quickly resolve the controversial situation in favor of the dollar. Both pairs are now at the point where a downward trend may begin to emerge, but any negative news can quickly neutralize these intentions and plans.
The average volatility of the GBP/USD pair over the last five trading days is 77 points. For the pound/dollar pair, this value is “average.” Therefore, on May 10, we anticipate movement within channels 1.2542 and 1.2696. A reversal of the Heiken Ashi indicator upwards will signal a possible resumption of the upward movement.
Nearest support levels:
S1 – 1.2573
S2 – 1.2512
S3 – 1.2451
Nearest resistance levels:
R1 – 1.2634
R2 – 1.2695
R3 – 1.2756
Trade recommendations:
The GBP/USD pair in the 4-hour timeframe maintains an upward trend. Sideways movement may resume, but now it is possible to trade with targets of 1.2695 and 1.2756 in case of a reversal of the Heiken Ashi indicator upwards. Short positions can be considered after overcoming the moving average, but as practice shows, such signals do not lead to a drop in the pair.
Explanation of illustrations:
Linear regression channels – help determine the current trend. If both are directed in one direction, the trend is strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction to trade now.
Murrey levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel 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) means a trend reversal in the opposite direction is approaching.
The material has been provided by InstaForex Company – www.instaforex.com
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