GBP/USD. Overview for September 19th. The Bank of England may disappoint bulls for the first time in a long time
September 19, 2023 9:24 am
The GBP/USD currency pair refused to move on Monday. The pair’s volatility was 40 points, even lower than the euro. In the case of the pound, the price stood still, not just figuratively. On the other hand, this is good because the technical picture has stayed the same. The pound remains below the moving average, linear regression channels point downward, and the price steadily declines. It’s worth noting that, like in the case of the European currency, the CCI indicator has entered the oversold area twice already. As we can see, there has been no growth even after the second entry. Of course, in anticipation of the meetings of the Federal Reserve and the Bank of England, it is not advisable to make any forecasts. However, at this point, we do not see any reason for the current downward trend to change sharply to an upward one.
In the 24-hour timeframe, the pair is approaching the 50.0% Fibonacci level, which we call the first target. A bounce from it could trigger the correction looming for weeks. And this bounce may coincide either with the Bank of England’s or the Federal Reserve’s meetings. Last week, we already saw that a key rate hike does not guarantee the rise of the national currency, so the pound also has the potential to fall this week. It’s worth reminding ourselves that the market expects the Federal Reserve to leave its rate unchanged, while the Bank of England is expected to raise its rate for the 15th time in a row. Therefore, even such a scenario does not guarantee a rise in the British currency. However, the likelihood of an increase this week is quite high.
The pound’s prospects no longer depend on the Bank of England. The main problem for the pound sterling now is not the actions or inaction of the Bank of England. The British regulator can raise the rate two or three more times, but that means little. The pound has been rising for a whole year, even though during this time, not only the Bank of England tightened its monetary policy. If anyone forgets, GBP/USD is the ratio of the pound and the dollar in terms of value, not an expression of the purchasing power of the British currency. Thus, we still believe that the pound is overbought. All the bullish growth factors have long been considered and worked out, so there is no reason for a new pound rally in the coming months.
In addition, the market understands perfectly well that the British regulator is approaching the “finish line,” so it becomes increasingly difficult to expect it to maintain a “hawkish” rhetoric. And since there is no longer a strong and prolonged rate hike on the horizon, there is no need to buy the pound. In other words, the Bank of England could raise the rate on Thursday and simultaneously indicate that this tightening could be the last. Experts have already called such an occurrence “dovish tightening.” We want to again emphasize to traders that what matters is not the central bank’s decisions but how the market interprets them. Therefore, in any event of a fundamental nature, you can see upward and downward movements equally.
So, what can help the pound in the current circumstances? First, the Federal Reserve, if it suddenly announces the end of the tightening cycle tomorrow evening, which is currently impossible to believe. Second, there is a simple need for a technical correction. There is a strong level at 1.2302, from which a technical bounce and correction could occur. Thirdly, a “bearish pause” because sellers cannot increase their positions day after day; they also need “timeouts” from time to time. We recommend waiting for either a rebound from 1.2302 or a consolidation above the moving average and closely monitoring the fundamentals and macroeconomics on Wednesday and Thursday.
The average volatility of the GBP/USD pair over the last five trading days is 73 pips. For the pound/dollar pair, this value is considered “average.” Therefore, on Tuesday, September 19th, we expect movement within the range limited by the levels of 1.2306 and 1.2452. A reversal of the Heiken Ashi indicator upwards will signal a new upward correction phase.
The nearest support levels:
S1 – 1.2360
S2 – 1.2329
S3 – 1.2299
The nearest resistance levels:
R1 – 1.2390
R2 – 1.2421
R3 – 1.2451
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair continues to hover near its local lows and regularly updates them. Therefore, at the moment, it is advisable to remain in short positions with targets at 1.2329 and 1.2306 until the price consolidates above the moving average. Considering long positions can only be done after the price consolidates above the moving average line, with targets at 1.2512 and 1.2543.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it indicates a strong current trend.
Moving average line (settings 20,0, smoothed) – determines the short-term trend and direction in which trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel the pair will trade over the next day, based on current volatility indicators.
CCI indicator – its entry into the overbought area (above +250) or oversold area (below -250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair refused to move on Monday. The pair’s volatility was 40 points, even lower than the euro. In the case of the pound, the price stood still, not just figuratively. On the other hand, this is good because the technical picture has stayed the same. The pound remains below the moving average, linear regression channels point downward, and the price steadily declines. It’s worth noting that, like in the case of the European currency, the CCI indicator has entered the oversold area twice already. As we can see, there has been no growth even after the second entry. Of course, in anticipation of the meetings of the Federal Reserve and the Bank of England, it is not advisable to make any forecasts. However, at this point, we do not see any reason for the current downward trend to change sharply to an upward one.
In the 24-hour timeframe, the pair is approaching the 50.0% Fibonacci level, which we call the first target. A bounce from it could trigger the correction looming for weeks. And this bounce may coincide either with the Bank of England’s or the Federal Reserve’s meetings. Last week, we already saw that a key rate hike does not guarantee the rise of the national currency, so the pound also has the potential to fall this week. It’s worth reminding ourselves that the market expects the Federal Reserve to leave its rate unchanged, while the Bank of England is expected to raise its rate for the 15th time in a row. Therefore, even such a scenario does not guarantee a rise in the British currency. However, the likelihood of an increase this week is quite high.
The pound’s prospects no longer depend on the Bank of England. The main problem for the pound sterling now is not the actions or inaction of the Bank of England. The British regulator can raise the rate two or three more times, but that means little. The pound has been rising for a whole year, even though during this time, not only the Bank of England tightened its monetary policy. If anyone forgets, GBP/USD is the ratio of the pound and the dollar in terms of value, not an expression of the purchasing power of the British currency. Thus, we still believe that the pound is overbought. All the bullish growth factors have long been considered and worked out, so there is no reason for a new pound rally in the coming months.
In addition, the market understands perfectly well that the British regulator is approaching the “finish line,” so it becomes increasingly difficult to expect it to maintain a “hawkish” rhetoric. And since there is no longer a strong and prolonged rate hike on the horizon, there is no need to buy the pound. In other words, the Bank of England could raise the rate on Thursday and simultaneously indicate that this tightening could be the last. Experts have already called such an occurrence “dovish tightening.” We want to again emphasize to traders that what matters is not the central bank’s decisions but how the market interprets them. Therefore, in any event of a fundamental nature, you can see upward and downward movements equally.
So, what can help the pound in the current circumstances? First, the Federal Reserve, if it suddenly announces the end of the tightening cycle tomorrow evening, which is currently impossible to believe. Second, there is a simple need for a technical correction. There is a strong level at 1.2302, from which a technical bounce and correction could occur. Thirdly, a “bearish pause” because sellers cannot increase their positions day after day; they also need “timeouts” from time to time. We recommend waiting for either a rebound from 1.2302 or a consolidation above the moving average and closely monitoring the fundamentals and macroeconomics on Wednesday and Thursday.
The average volatility of the GBP/USD pair over the last five trading days is 73 pips. For the pound/dollar pair, this value is considered “average.” Therefore, on Tuesday, September 19th, we expect movement within the range limited by the levels of 1.2306 and 1.2452. A reversal of the Heiken Ashi indicator upwards will signal a new upward correction phase.
The nearest support levels:
S1 – 1.2360
S2 – 1.2329
S3 – 1.2299
The nearest resistance levels:
R1 – 1.2390
R2 – 1.2421
R3 – 1.2451
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair continues to hover near its local lows and regularly updates them. Therefore, at the moment, it is advisable to remain in short positions with targets at 1.2329 and 1.2306 until the price consolidates above the moving average. Considering long positions can only be done after the price consolidates above the moving average line, with targets at 1.2512 and 1.2543.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it indicates a strong current trend.
Moving average line (settings 20,0, smoothed) – determines the short-term trend and direction in which trading should be conducted.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel the pair will trade over the next day, based on current volatility indicators.
CCI indicator – its entry into the overbought area (above +250) or oversold area (below -250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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