Overview of the GBP/USD pair. August 29th. The Bank of England believes that rates should remain high for a long time
August 29, 2023 9:23 am
On Monday, the GBP/USD currency pair displayed minimal volatility and a weak upward movement. As mentioned in the EUR/USD article, a movement of 30-40 points cannot be considered a trend change or taken seriously; it’s merely market noise. Thus, the weak upward retracement might end near the moving average today. Remember that the British pound was in a lateral channel for several weeks and only managed to break out of it at the end of last week, settling below. Therefore, the chances of the British currency’s continued decline have sharply increased, but it doesn’t guarantee a 100% probability of a southward movement. There have been cases where the movement began in the opposite direction after breaking out of a channel on one side.
This week, such an outcome is possible since several crucial reports on the US labor market, GDP, unemployment, and business activity will be released. While each report may not be powerful enough to provoke a trend reversal, if, for instance, all reports turn out negative for the dollar, it might cause the pair to rise by 200-300 points. Such a rise could indeed be a trend change.
However, such a scenario seems somewhat unbelievable. While undoubtedly slowing down due to a significant rate hike, the US economy remains much better than the UK’s. Compare the GDP figures, business activity levels, unemployment rates, and labor market stats, and the picture becomes clear. So even if this week’s stats from across the Atlantic underperform, it doesn’t mean that the dollar has been falling for 11 consecutive months and is losing its edge. The macroeconomic backdrop, fundamental landscape, and technical analysis indicate a continued decline in the British currency.
Ben Broadbent supports a further rate increase.
Traditionally, little information comes from the Bank of England. At the Jackson Hole symposium, Andrew Bailey did not speak, and his colleagues rarely commented. However, yesterday, Bank of England Deputy Chairman Ben Broadbent made a modest comment regarding monetary policy. He stated that the effects of sharp price increases will dissipate slowly. He highlighted the excessively high wage growth rates, again driving up inflation. Britons have more money and begin to spend more, which, in turn, triggers price increases. Thus, Broadbent deems it appropriate to continue raising the key rate. How much the British regulator might raise it remains uncertain.
Can the Bank of England’s hawkish stance be considered a sufficient basis for new growth in the British currency? We believe not. Once again, we return to the fact that the pound has risen for nearly a whole year and hasn’t been able to undergo a proper correction during this time. A strong downward correction is needed even if the global upward trend continues. Two technical analysis factors indicate a possible correction this week: the oversold status of the CCI indicator and the absence of a clear breakthrough of the Senkou Span B line on the 24-hour timeframe. However, suppose macroeconomic data from across the ocean pleases this week. In that case, the pair may continue to decline, which is logical and substantiated and simultaneously increases the likelihood of further depreciation of the British currency.
The average volatility of the GBP/USD pair over the last five trading days is 104 points. For the pound/dollar pair, this value is “average.” Therefore, on Tuesday, August 29, we expect movement within the range bounded by levels 1.2518 and 1.2726. A reversal of the Heiken Ashi indicator downward signals a potential resumption of downward movement.
Near Support Levels:
S1 – 1.2573
S2 – 1.2512
S3 – 1.2451
Near Resistance Levels:
R1 – 1.2634
R2 – 1.2695
R3 – 1.2756
Trading Recommendations:
The GBP/USD pair in the 4-hour timeframe has resumed its downward trend. Therefore, at this time, new short positions should be considered with targets of 1.2573 and 1.2518 in the case of a Heiken Ashi indicator reversal downward or a price bounce from the moving average. Long positions should only be considered once the price is secured above the moving average line, with targets of 1.2695 and 1.2726.
Explanations of Illustrations:
Linear Regression Channels help identify the current trend. The trend is strong if both are directed in the same direction.
Moving Average Line (settings 20.0, smoothed) identifies the short-term trend and the direction in which trading should now be conducted.
Murray Levels are target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price channel the pair will trade over the next 24 hours based on current volatility indicators.
CCI Indicator: Its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal is imminent in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
On Monday, the GBP/USD currency pair displayed minimal volatility and a weak upward movement. As mentioned in the EUR/USD article, a movement of 30-40 points cannot be considered a trend change or taken seriously; it’s merely market noise. Thus, the weak upward retracement might end near the moving average today. Remember that the British pound was in a lateral channel for several weeks and only managed to break out of it at the end of last week, settling below. Therefore, the chances of the British currency’s continued decline have sharply increased, but it doesn’t guarantee a 100% probability of a southward movement. There have been cases where the movement began in the opposite direction after breaking out of a channel on one side.
This week, such an outcome is possible since several crucial reports on the US labor market, GDP, unemployment, and business activity will be released. While each report may not be powerful enough to provoke a trend reversal, if, for instance, all reports turn out negative for the dollar, it might cause the pair to rise by 200-300 points. Such a rise could indeed be a trend change.
However, such a scenario seems somewhat unbelievable. While undoubtedly slowing down due to a significant rate hike, the US economy remains much better than the UK’s. Compare the GDP figures, business activity levels, unemployment rates, and labor market stats, and the picture becomes clear. So even if this week’s stats from across the Atlantic underperform, it doesn’t mean that the dollar has been falling for 11 consecutive months and is losing its edge. The macroeconomic backdrop, fundamental landscape, and technical analysis indicate a continued decline in the British currency.
Ben Broadbent supports a further rate increase.
Traditionally, little information comes from the Bank of England. At the Jackson Hole symposium, Andrew Bailey did not speak, and his colleagues rarely commented. However, yesterday, Bank of England Deputy Chairman Ben Broadbent made a modest comment regarding monetary policy. He stated that the effects of sharp price increases will dissipate slowly. He highlighted the excessively high wage growth rates, again driving up inflation. Britons have more money and begin to spend more, which, in turn, triggers price increases. Thus, Broadbent deems it appropriate to continue raising the key rate. How much the British regulator might raise it remains uncertain.
Can the Bank of England’s hawkish stance be considered a sufficient basis for new growth in the British currency? We believe not. Once again, we return to the fact that the pound has risen for nearly a whole year and hasn’t been able to undergo a proper correction during this time. A strong downward correction is needed even if the global upward trend continues. Two technical analysis factors indicate a possible correction this week: the oversold status of the CCI indicator and the absence of a clear breakthrough of the Senkou Span B line on the 24-hour timeframe. However, suppose macroeconomic data from across the ocean pleases this week. In that case, the pair may continue to decline, which is logical and substantiated and simultaneously increases the likelihood of further depreciation of the British currency.
The average volatility of the GBP/USD pair over the last five trading days is 104 points. For the pound/dollar pair, this value is “average.” Therefore, on Tuesday, August 29, we expect movement within the range bounded by levels 1.2518 and 1.2726. A reversal of the Heiken Ashi indicator downward signals a potential resumption of downward movement.
Near Support Levels:
S1 – 1.2573
S2 – 1.2512
S3 – 1.2451
Near Resistance Levels:
R1 – 1.2634
R2 – 1.2695
R3 – 1.2756
Trading Recommendations:
The GBP/USD pair in the 4-hour timeframe has resumed its downward trend. Therefore, at this time, new short positions should be considered with targets of 1.2573 and 1.2518 in the case of a Heiken Ashi indicator reversal downward or a price bounce from the moving average. Long positions should only be considered once the price is secured above the moving average line, with targets of 1.2695 and 1.2726.
Explanations of Illustrations:
The material has been provided by InstaForex Company – www.instaforex.com
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