Overview for the GBP/USD pair on April 24th. Dave Ramsden expects inflation to slow down
April 24, 2024 11:23 am
The GBP/USD currency pair corrected upwards on Tuesday after falling on Monday. Recall that on Monday, there were no significant reasons for the pair’s decline, but at the same time, this movement was the most logical and consistent of all possible. The pound had been overbought for a long time, and the market refused to sell it under any fundamental or macroeconomic events for 4 months. Now, the British pound is somewhat “restoring fair value” against the dollar. And for the British currency to continue its decline, positive news from the US every day and negative news from the UK are absolutely unnecessary.
By the way, yesterday in the UK, business activity indices in the service and manufacturing sectors were published. It turned out that business activity in the service sector increased significantly, stronger than forecasts, while business activity in the manufacturing sector turned out to be significantly lower than forecasts. However, the market somehow “saw” only the first indicator, so the British pound appreciated during the day. However, we believe that the pair simply started a technical correction, and the business activity indices only acted as a catalyst for the rebound.
There can be two reasons for the technical correction. The first one is the triple oversold condition of the CCI indicator. This indicator entered the “-250” level three times, and the second time, we did not even see a minimal upward retracement. The indicator does not indicate the overall oversold condition of the pound, only the local one. In a downward trend, each entry into oversold territory is just a reason for a rebound. Therefore, the pair’s decline will continue in any case.
The second reason is fundamental. Last week, one of the Bank of England representatives, Dave Ramsden, stated that the disinflation process in Britain could stall. Recall that recently, British inflation has shown good slowing rates, giving grounds to assume that the British regulator will start easing monetary policy even earlier than the Fed. However, if inflation stops falling, then there will be no reason for the Bank of England to cut rates. Just as there is none now for the Fed. In this case, both central banks will find themselves in approximately the same conditions.
This should not affect the overall prospects for the pound’s decline but may slow down this process. Mr. Ramsden also said that he expects further inflation declines over time and believes that this process will no longer be as fast and stable as it was in the last year.
Overall, a regular upward correction is taking place at the moment. It may even be relatively strong, but we do not consider it advisable to try to work out the upward movement. Even if the price exceeds the moving average line.
The average volatility of the GBP/USD pair for the last 5 trading days is 87 points. For the pound/dollar pair, this value is considered “average.” Therefore, on Wednesday, April 24, we expect movement within the range bounded by the levels of 1.2366 and 1.2540. The senior linear regression channel is directed downward, indicating a downward trend now. The CCI indicator entered the oversold territory three times recently, which caused a surge in the British currency. However, this should only be a retracement or correction.
Nearest support levels:
S1 – 1.2390
S2 – 1.2329
S3 – 1.2268
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2512
R3 – 1.2573
Trading recommendations:
The GBP/USD pair completed a flat on the 24-hour TF, and this is the most important thing now. We still expect movement only to the south, and now, when the level of 1.2500 is overcome, one can consider selling the pair with targets at 1.2329 and 1.2268. Buying the British pound when the price exits the sideways channel through the lower boundary is not relevant. The pair may rebound upward, as the CCI indicator entered the oversold territory three times, but we do not consider it advisable to work out this correction.
Explanation of illustrations:
Linear regression channels – help determine the current trend. If both are directed in the same direction, it means the trend is strong.
The 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 in which the pair will spend the next day, based on current volatility indicators.
CCI indicator – its entry into oversold territory (below -250) or overbought territory (above +250) means that a trend reversal towards the opposite direction is approaching.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair corrected upwards on Tuesday after falling on Monday. Recall that on Monday, there were no significant reasons for the pair’s decline, but at the same time, this movement was the most logical and consistent of all possible. The pound had been overbought for a long time, and the market refused to sell it under any fundamental or macroeconomic events for 4 months. Now, the British pound is somewhat “restoring fair value” against the dollar. And for the British currency to continue its decline, positive news from the US every day and negative news from the UK are absolutely unnecessary.
By the way, yesterday in the UK, business activity indices in the service and manufacturing sectors were published. It turned out that business activity in the service sector increased significantly, stronger than forecasts, while business activity in the manufacturing sector turned out to be significantly lower than forecasts. However, the market somehow “saw” only the first indicator, so the British pound appreciated during the day. However, we believe that the pair simply started a technical correction, and the business activity indices only acted as a catalyst for the rebound.
There can be two reasons for the technical correction. The first one is the triple oversold condition of the CCI indicator. This indicator entered the “-250” level three times, and the second time, we did not even see a minimal upward retracement. The indicator does not indicate the overall oversold condition of the pound, only the local one. In a downward trend, each entry into oversold territory is just a reason for a rebound. Therefore, the pair’s decline will continue in any case.
The second reason is fundamental. Last week, one of the Bank of England representatives, Dave Ramsden, stated that the disinflation process in Britain could stall. Recall that recently, British inflation has shown good slowing rates, giving grounds to assume that the British regulator will start easing monetary policy even earlier than the Fed. However, if inflation stops falling, then there will be no reason for the Bank of England to cut rates. Just as there is none now for the Fed. In this case, both central banks will find themselves in approximately the same conditions.
This should not affect the overall prospects for the pound’s decline but may slow down this process. Mr. Ramsden also said that he expects further inflation declines over time and believes that this process will no longer be as fast and stable as it was in the last year.
Overall, a regular upward correction is taking place at the moment. It may even be relatively strong, but we do not consider it advisable to try to work out the upward movement. Even if the price exceeds the moving average line.
The average volatility of the GBP/USD pair for the last 5 trading days is 87 points. For the pound/dollar pair, this value is considered “average.” Therefore, on Wednesday, April 24, we expect movement within the range bounded by the levels of 1.2366 and 1.2540. The senior linear regression channel is directed downward, indicating a downward trend now. The CCI indicator entered the oversold territory three times recently, which caused a surge in the British currency. However, this should only be a retracement or correction.
Nearest support levels:
S1 – 1.2390
S2 – 1.2329
S3 – 1.2268
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2512
R3 – 1.2573
Trading recommendations:
The GBP/USD pair completed a flat on the 24-hour TF, and this is the most important thing now. We still expect movement only to the south, and now, when the level of 1.2500 is overcome, one can consider selling the pair with targets at 1.2329 and 1.2268. Buying the British pound when the price exits the sideways channel through the lower boundary is not relevant. The pair may rebound upward, as the CCI indicator entered the oversold territory three times, but we do not consider it advisable to work out this correction.
Explanation of illustrations:
Linear regression channels – help determine the current trend. If both are directed in the same direction, it means the trend is strong.
The 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 in which the pair will spend the next day, based on current volatility indicators.
CCI indicator – its entry into oversold territory (below -250) or overbought territory (above +250) means that a trend reversal towards the opposite direction is approaching.
The material has been provided by InstaForex Company – www.instaforex.com
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