GBP/USD. Overview for May 26. The Federal Reserve’s minutes turned out to be more “hawkish” than expected
May 26, 2023 7:24 am
Throughout the day, there were a few retracements upwards, but we have already drawn traders’ attention to this fact: the pair is currently moving with frequent corrections and low volatility. Such a movement pattern significantly complicates intraday trading. It is more profitable to trade in the medium-term style at the moment. “Fast” indicators currently generate false signals.
On Thursday, there were only a few significant events in the UK and the US. However, it is worth noting that both “insignificant” reports favored the dollar. The US GDP in the second estimate for the first quarter exceeded forecasts by 0.2% and reached +1.3% quarterly. The report on initial jobless claims showed a figure of 229,000 against a forecast of +245,000. Thus, the dollar has been performing well for the past two weeks, even without the help of macroeconomic statistics. When assistance is present, everything turns out exceptionally well.
Let us again emphasize that we consider the state of the American economy (pre-default and terrible) much more satisfactory than the European or British economies. This can be seen from simple GDP indicators. The economy continues to grow in the United States, and there is no sign of a recession. The economy has stagnated in the European Union and Britain for several quarters. The labor market in the US, from which a sharp decline is expected, continues to create jobs steadily, and the unemployment rate is currently at its lowest level in 50 years. And all this is happening with the Federal Reserve’s maximum interest rate, which is higher than the ECB and the Bank of England rates. This only indicates that the American economy is in excellent condition, considering the monetary year and a half – the consequences of a swollen “bubble” that lasted several years.
The meaningless minutes of the Federal Reserve can help the dollar. Before each new publication of the Federal Reserve’s minutes, also known as “minutes,” we say this document is of little value. From the minutes, one can get information at most about how unanimous the FOMC members’ opinions were regarding changes in monetary policy (if any). According to the general market opinion, the Fed finished raising rates in May and now may decide on another additional tightening only in case of a force majeure. However, the minutes stated that some committee members still need a tighter monetary policy. We have been saying the same thing based on the statements of the Fed committee members over the past two weeks. Some have stated they may vote for a 0.25% increase in June but are a minority. The majority of officials advocate maintaining the current level.
The minutes also stated that the risks of economic slowdown and rising unemployment have increased due to the banking crisis. However, inflation is the key factor that will determine monetary policy, as the consumer price index is still far from the target level. The Fed also intends to continue monitoring labor market changes closely. Thus, the rate will not change in June, but it will not be a unanimous decision. Theoretically, the rate may increase once or twice more in 2023 (theoretically) only if inflation suddenly starts to accelerate again or stops slowing down. Therefore, “hawkish” sentiments will increase as inflation reports worsen. For now, there is no reason for joy or panic. The Fed will not take risks when inflation is already decreasing normally. Nevertheless, we would characterize the nature of the Federal Reserve’s minutes more as “hawkish” than “dovish.”
On the 24-hour timeframe, the pair continues its confident movement toward the Senkou Span B line, which is currently at 1.2170. We see this level as the minimum target for the pair’s decline. We do not expect a medium-term rise in the pair as we do not see any grounds for it. In any case, there is still time to revise the technical picture.
The average volatility for the GBP/USD pair over the past five trading days is 79 pips. For the pound/dollar pair, this value is considered “average.” Therefore, on Friday, May 26, we expect movement within the channel, bounded by the levels of 1.2271 and 1.2429. A reversal of the Heiken Ashi indicator upwards will signal a new phase of the corrective movement.
Nearest support levels:
S1 – 1.2329
S2 – 1.2268
S3 – 1.2207
Nearest resistance levels:
R1 – 1.2390
R2 – 1.2451
R3 – 1.2512
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair continues to move south, so short positions with targets at 1.2268 and 1.2207 remain relevant, to be held until the price consolidates above the moving average. Long positions can be considered if the price consolidates above the moving average with a target of 1.2512.
Illustration explanations:
Linear regression channels – help determine the current trend. It indicates a strong trend if both channels are 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.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel within which the pair is expected to move in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold region (below -250) or overbought region (above +250) indicates an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
Throughout the day, there were a few retracements upwards, but we have already drawn traders’ attention to this fact: the pair is currently moving with frequent corrections and low volatility. Such a movement pattern significantly complicates intraday trading. It is more profitable to trade in the medium-term style at the moment. “Fast” indicators currently generate false signals.
On Thursday, there were only a few significant events in the UK and the US. However, it is worth noting that both “insignificant” reports favored the dollar. The US GDP in the second estimate for the first quarter exceeded forecasts by 0.2% and reached +1.3% quarterly. The report on initial jobless claims showed a figure of 229,000 against a forecast of +245,000. Thus, the dollar has been performing well for the past two weeks, even without the help of macroeconomic statistics. When assistance is present, everything turns out exceptionally well.
Let us again emphasize that we consider the state of the American economy (pre-default and terrible) much more satisfactory than the European or British economies. This can be seen from simple GDP indicators. The economy continues to grow in the United States, and there is no sign of a recession. The economy has stagnated in the European Union and Britain for several quarters. The labor market in the US, from which a sharp decline is expected, continues to create jobs steadily, and the unemployment rate is currently at its lowest level in 50 years. And all this is happening with the Federal Reserve’s maximum interest rate, which is higher than the ECB and the Bank of England rates. This only indicates that the American economy is in excellent condition, considering the monetary year and a half – the consequences of a swollen “bubble” that lasted several years.
The meaningless minutes of the Federal Reserve can help the dollar. Before each new publication of the Federal Reserve’s minutes, also known as “minutes,” we say this document is of little value. From the minutes, one can get information at most about how unanimous the FOMC members’ opinions were regarding changes in monetary policy (if any). According to the general market opinion, the Fed finished raising rates in May and now may decide on another additional tightening only in case of a force majeure. However, the minutes stated that some committee members still need a tighter monetary policy. We have been saying the same thing based on the statements of the Fed committee members over the past two weeks. Some have stated they may vote for a 0.25% increase in June but are a minority. The majority of officials advocate maintaining the current level.
The minutes also stated that the risks of economic slowdown and rising unemployment have increased due to the banking crisis. However, inflation is the key factor that will determine monetary policy, as the consumer price index is still far from the target level. The Fed also intends to continue monitoring labor market changes closely. Thus, the rate will not change in June, but it will not be a unanimous decision. Theoretically, the rate may increase once or twice more in 2023 (theoretically) only if inflation suddenly starts to accelerate again or stops slowing down. Therefore, “hawkish” sentiments will increase as inflation reports worsen. For now, there is no reason for joy or panic. The Fed will not take risks when inflation is already decreasing normally. Nevertheless, we would characterize the nature of the Federal Reserve’s minutes more as “hawkish” than “dovish.”
On the 24-hour timeframe, the pair continues its confident movement toward the Senkou Span B line, which is currently at 1.2170. We see this level as the minimum target for the pair’s decline. We do not expect a medium-term rise in the pair as we do not see any grounds for it. In any case, there is still time to revise the technical picture.
The average volatility for the GBP/USD pair over the past five trading days is 79 pips. For the pound/dollar pair, this value is considered “average.” Therefore, on Friday, May 26, we expect movement within the channel, bounded by the levels of 1.2271 and 1.2429. A reversal of the Heiken Ashi indicator upwards will signal a new phase of the corrective movement.
Nearest support levels:
S1 – 1.2329
S2 – 1.2268
S3 – 1.2207
Nearest resistance levels:
R1 – 1.2390
R2 – 1.2451
R3 – 1.2512
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair continues to move south, so short positions with targets at 1.2268 and 1.2207 remain relevant, to be held until the price consolidates above the moving average. Long positions can be considered if the price consolidates above the moving average with a target of 1.2512.
Illustration explanations:
Linear regression channels – help determine the current trend. It indicates a strong trend if both channels are 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.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the probable price channel within which the pair is expected to move in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold region (below -250) or overbought region (above +250) indicates an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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