Overview of the GBP/USD pair on July 23rd. The Fed meeting may affect the fate of the dollar
July 23, 2023 4:23 pm
During Friday’s trading, there was only one noteworthy report – UK retail sales in June increased by 0.7% compared to the forecast of +0.2% m/m. Consequently, a more logical outcome would have been a rise in the value of the British pound. Surprisingly, the opposite occurred, leading to a decline, which makes more sense from a broader perspective. Over the past ten months, the pound has risen nearly 30 cents against the dollar, with corrections being extremely rare as if favoring certain entities. Consequently, the decline should continue, regardless of other factors.
The CCI indicator did not enter the oversold zone last week, although it came close to it. As a result, the pair might continue its downward movement. However, looming on the horizon are the meetings of the Federal Reserve and the Bank of England, making the market’s reaction unpredictable. At present, it is difficult to determine whether the market is preemptively reacting to the decisions that will be announced in the upcoming weeks. If a rate hike is expected, the market buys the currency in advance. But currently, the dollar is rising, which is rare despite the regular tightening of the Federal Reserve’s monetary policy. Consequently, the situation could be clearer-cut.
On the one hand, we have a clear fixation below the moving average. On the other hand, how many such fixations have we witnessed in 2023? In most cases, the pair drops another 50-100 points and then resumes its upward trend. Who said it would be different this time? Therefore, selling is preferable and justified, but considering the current bullish sentiment of the market, a new rise of the British pound is quite possible.
Powell’s speech may harm the dollar.
In the UK, the macroeconomic reports for the upcoming week will mainly include business activity indices for services and manufacturing on Monday. These indices are crucial as they serve as leading indicators of the state of the economy. According to experts’ forecasts, the manufacturing sector will remain below the “waterline.” Thus, we do not anticipate significant changes in these indicators, resulting in a limited impact on the market.
In the US, on Monday, there will also be business activity indexes, but not from the Institute for Supply Management (ISM), but from S&P, which are considered less significant. The rest of the week includes various reports such as new home sales data, the announcement of the Federal Reserve’s meeting results, GDP estimates for the second quarter, durable goods orders, initial jobless claims, personal income, and spending, the Personal Consumption Expenditures Price Index, and the University of Michigan’s consumer sentiment index.
As we can see, there will be numerous important events and publications. However, the main focus will be on the Federal Reserve’s meeting and Powell’s speech. It is widely accepted that the key rate will increase by another 0.25% to 5.5%, but this tightening might be the last in the cycle, considering the sharp decline in inflation to 3% in June. Powell will have to address this issue, but, of course, he will avoid providing a definite answer. The head of the Federal Reserve will likely resort to phrases like “it will all depend on incoming data” or “the decision on the rate will be discussed.” Consequently, there will be limited specificity again.
Nevertheless, the market may react strongly to any statements from Powell. Even the slightest hint of dovishness might be enough for the pair to surge upward. Therefore, we should prepare for the worst scenario (a new rise of the pound) while hoping for the best (logical movements of the pair).
The average volatility of the GBP/USD pair over the last 5 trading days as of July 23 is 108 pips, which is considered “average” for the pound/dollar pair. Thus, on Monday, July 24, we expect movements within the range of 1.2742 and 1.2958. An upward reversal of the Heiken Ashi indicator will signal a possible correction to the upside.
Nearest support levels:
S1 – 1.2817
S2 – 1.2756
S3 – 1.2695
Nearest resistance levels:
R1 – 1.2878
R2 – 1.2939
R3 – 1.3000
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair stays below the moving average. Currently, short positions are relevant with targets at 1.2756 and 1.2742, which should be closed in case of the Heiken Ashi indicator reverses upwards. Considering long positions can be done if the price consolidates above the moving average, with targets at 1.3000 and 1.3062.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it indicates a strong trend.
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 the pair will trade in the next few days, based on the current volatility indicators.
CCI indicator – its entry into the overbought zone (above +250) or the oversold zone (below -250) indicates an upcoming trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
During Friday’s trading, there was only one noteworthy report – UK retail sales in June increased by 0.7% compared to the forecast of +0.2% m/m. Consequently, a more logical outcome would have been a rise in the value of the British pound. Surprisingly, the opposite occurred, leading to a decline, which makes more sense from a broader perspective. Over the past ten months, the pound has risen nearly 30 cents against the dollar, with corrections being extremely rare as if favoring certain entities. Consequently, the decline should continue, regardless of other factors.
The CCI indicator did not enter the oversold zone last week, although it came close to it. As a result, the pair might continue its downward movement. However, looming on the horizon are the meetings of the Federal Reserve and the Bank of England, making the market’s reaction unpredictable. At present, it is difficult to determine whether the market is preemptively reacting to the decisions that will be announced in the upcoming weeks. If a rate hike is expected, the market buys the currency in advance. But currently, the dollar is rising, which is rare despite the regular tightening of the Federal Reserve’s monetary policy. Consequently, the situation could be clearer-cut.
On the one hand, we have a clear fixation below the moving average. On the other hand, how many such fixations have we witnessed in 2023? In most cases, the pair drops another 50-100 points and then resumes its upward trend. Who said it would be different this time? Therefore, selling is preferable and justified, but considering the current bullish sentiment of the market, a new rise of the British pound is quite possible.
Powell’s speech may harm the dollar.
In the UK, the macroeconomic reports for the upcoming week will mainly include business activity indices for services and manufacturing on Monday. These indices are crucial as they serve as leading indicators of the state of the economy. According to experts’ forecasts, the manufacturing sector will remain below the “waterline.” Thus, we do not anticipate significant changes in these indicators, resulting in a limited impact on the market.
In the US, on Monday, there will also be business activity indexes, but not from the Institute for Supply Management (ISM), but from S&P, which are considered less significant. The rest of the week includes various reports such as new home sales data, the announcement of the Federal Reserve’s meeting results, GDP estimates for the second quarter, durable goods orders, initial jobless claims, personal income, and spending, the Personal Consumption Expenditures Price Index, and the University of Michigan’s consumer sentiment index.
As we can see, there will be numerous important events and publications. However, the main focus will be on the Federal Reserve’s meeting and Powell’s speech. It is widely accepted that the key rate will increase by another 0.25% to 5.5%, but this tightening might be the last in the cycle, considering the sharp decline in inflation to 3% in June. Powell will have to address this issue, but, of course, he will avoid providing a definite answer. The head of the Federal Reserve will likely resort to phrases like “it will all depend on incoming data” or “the decision on the rate will be discussed.” Consequently, there will be limited specificity again.
Nevertheless, the market may react strongly to any statements from Powell. Even the slightest hint of dovishness might be enough for the pair to surge upward. Therefore, we should prepare for the worst scenario (a new rise of the pound) while hoping for the best (logical movements of the pair).
The average volatility of the GBP/USD pair over the last 5 trading days as of July 23 is 108 pips, which is considered “average” for the pound/dollar pair. Thus, on Monday, July 24, we expect movements within the range of 1.2742 and 1.2958. An upward reversal of the Heiken Ashi indicator will signal a possible correction to the upside.
Nearest support levels:
S1 – 1.2817
S2 – 1.2756
S3 – 1.2695
Nearest resistance levels:
R1 – 1.2878
R2 – 1.2939
R3 – 1.3000
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair stays below the moving average. Currently, short positions are relevant with targets at 1.2756 and 1.2742, which should be closed in case of the Heiken Ashi indicator reverses upwards. Considering long positions can be done if the price consolidates above the moving average, with targets at 1.3000 and 1.3062.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it indicates a strong trend.
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 the pair will trade in the next few days, based on the current volatility indicators.
CCI indicator – its entry into the overbought zone (above +250) or the oversold zone (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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