Overview for the GBP/USD pair on April 17th. British inflation could weigh on the pound
April 17, 2024 8:22 am
The GBP/USD currency pair also attempted to start an upward correction on Tuesday, but volatility throughout the day was again very low. As seen in the illustration below, what we mean by “low volatility” is clear. Out of the last 30 days, there were only nine days when volatility exceeded 90 points. Another nine days ended with volatility below 50 points, indicating a complete lack of movement. Thus, the British pound has been moving very weakly in recent months.
Last week, the pair exited the sideways channel in which it had spent four months, which was an additional “joy” for traders. The market finally considered the entire fundamental and macroeconomic background, which has long been signaling the inevitable rise of the American currency. As with the euro, we want readers to understand us correctly. We do not believe that the dollar should always rise. Or that the dollar will rise for another year. But the current fundamental background, which indicates that the Fed will begin a cycle of easing at an unknown time, and the Bank of England – within the foreseeable future, supports only the dollar, as the Fed’s monetary policy will remain “hawkish” even longer than the Bank of England’s policy.
Recall that the market was expecting the exact opposite at the beginning of the year. Everyone expected rate cuts from the Fed in March. Then, it became clear that March was a miss, and traders switched to June. According to the FedWatch tool, the probability of a rate cut in June is 24%. This is when, before the US inflation report for March, the probability exceeded 65%, sometimes even reaching 80%. We have repeatedly said that the market is wrong in its expectations regarding the Fed and Bank of England rates. And based on this erroneous opinion, it conducts illogical trading, which only causes bewilderment. However, the market is starting to come back to earth, so movements become more logical. And if so, you can expect only a decline in the British pound and a rise in the dollar.
Today, the inflation report for March will be published in the UK. According to experts’ forecasts, the consumer price index will decrease to 3.1% y/y and core inflation to 4.1%. Thus, core inflation will officially be lower than in the US, whose Fed was supposed to cut rates as early as March. Which of the two central banks is then closer to easing monetary policy? If we had assumed earlier that both central banks could start cutting rates simultaneously, now we believe that the Bank of England would be the first, whose rate is already lower.
Thus, the overall conclusion can only be one: the pair should continue moving to the south. From a technical point of view, on the 24-hour TF, the pair has been correcting upwards for about half a year, and now it may resume the downward trend that started last summer. If so, the targets for the decline of the British currency are around the 20th level and below.
The average volatility of the GBP/USD pair over the past five trading days is 103 points. For the pound/dollar pair, this value is “average.” Therefore, on Wednesday, April 17, we expect movement within the range limited by the levels of 1.2342 and 1.2548. The senior linear regression channel is still sideways, but the downward trend may have resumed. The CCI indicator has entered the oversold zone again, which may provoke a new rise in the pair. However, the key thing now is the completion of the 4-month flat.
Nearest support levels:
S1 – 1.2421
S2 – 1.2390
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2482
R3 – 1.2512
Trading recommendations:
The GBP/USD currency pair presumably completed the flat on the 24-hour TF, which is the most important thing. We still expect movement only to the south, and now that the level of 1.2500 has been broken, it is possible to consider selling the pair with targets at 1.2390 and 1.2342. Purchasing the British pound under the conditions of the price exiting the sideways channel through the lower boundary is irrelevant. The pair may rebound upwards this week, as the CCI indicator twice entered the oversold zone, but we do not consider it advisable to trade this correction.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. The trend is strong now 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 trading should be conducted now.
Murray 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 zone (below -250) or the overbought zone (above +250) means a trend reversal towards the opposite side is approaching.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair also attempted to start an upward correction on Tuesday, but volatility throughout the day was again very low. As seen in the illustration below, what we mean by “low volatility” is clear. Out of the last 30 days, there were only nine days when volatility exceeded 90 points. Another nine days ended with volatility below 50 points, indicating a complete lack of movement. Thus, the British pound has been moving very weakly in recent months.
Last week, the pair exited the sideways channel in which it had spent four months, which was an additional “joy” for traders. The market finally considered the entire fundamental and macroeconomic background, which has long been signaling the inevitable rise of the American currency. As with the euro, we want readers to understand us correctly. We do not believe that the dollar should always rise. Or that the dollar will rise for another year. But the current fundamental background, which indicates that the Fed will begin a cycle of easing at an unknown time, and the Bank of England – within the foreseeable future, supports only the dollar, as the Fed’s monetary policy will remain “hawkish” even longer than the Bank of England’s policy.
Recall that the market was expecting the exact opposite at the beginning of the year. Everyone expected rate cuts from the Fed in March. Then, it became clear that March was a miss, and traders switched to June. According to the FedWatch tool, the probability of a rate cut in June is 24%. This is when, before the US inflation report for March, the probability exceeded 65%, sometimes even reaching 80%. We have repeatedly said that the market is wrong in its expectations regarding the Fed and Bank of England rates. And based on this erroneous opinion, it conducts illogical trading, which only causes bewilderment. However, the market is starting to come back to earth, so movements become more logical. And if so, you can expect only a decline in the British pound and a rise in the dollar.
Today, the inflation report for March will be published in the UK. According to experts’ forecasts, the consumer price index will decrease to 3.1% y/y and core inflation to 4.1%. Thus, core inflation will officially be lower than in the US, whose Fed was supposed to cut rates as early as March. Which of the two central banks is then closer to easing monetary policy? If we had assumed earlier that both central banks could start cutting rates simultaneously, now we believe that the Bank of England would be the first, whose rate is already lower.
Thus, the overall conclusion can only be one: the pair should continue moving to the south. From a technical point of view, on the 24-hour TF, the pair has been correcting upwards for about half a year, and now it may resume the downward trend that started last summer. If so, the targets for the decline of the British currency are around the 20th level and below.
The average volatility of the GBP/USD pair over the past five trading days is 103 points. For the pound/dollar pair, this value is “average.” Therefore, on Wednesday, April 17, we expect movement within the range limited by the levels of 1.2342 and 1.2548. The senior linear regression channel is still sideways, but the downward trend may have resumed. The CCI indicator has entered the oversold zone again, which may provoke a new rise in the pair. However, the key thing now is the completion of the 4-month flat.
Nearest support levels:
S1 – 1.2421
S2 – 1.2390
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2482
R3 – 1.2512
Trading recommendations:
The GBP/USD currency pair presumably completed the flat on the 24-hour TF, which is the most important thing. We still expect movement only to the south, and now that the level of 1.2500 has been broken, it is possible to consider selling the pair with targets at 1.2390 and 1.2342. Purchasing the British pound under the conditions of the price exiting the sideways channel through the lower boundary is irrelevant. The pair may rebound upwards this week, as the CCI indicator twice entered the oversold zone, but we do not consider it advisable to trade this correction.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. The trend is strong now 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 trading should be conducted now.
Murray 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 zone (below -250) or the overbought zone (above +250) means a trend reversal towards the opposite side is approaching.
The material has been provided by InstaForex Company – www.instaforex.com
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