Overview of the GBP/USD pair. July 27th. Powell’s rhetoric remained highly neutral and cautious
July 27, 2023 7:26 am
The GBP/USD currency pair continued its upward movement on Wednesday, experiencing a volatility of 85 points. Notably, the British pound gained 85 points on the day of the Fed meeting. From our perspective, the market reacted to all the information it received with significant indifference, and the information itself lacked any prominent or impactful statements or decisions. Therefore, the market’s response was quite reasonable. The pair consolidated above the moving average line, indicating the potential to resume its upward trend. Frankly, nothing is surprising about this, as the pound has been rising for ten months without always having clear reasons or justifications. Nevertheless, the market continues to buy, despite several factors.
In the 24-hour timeframe, the pair failed to solidify below the critical line, similar to the euro. Consequently, both pairs have the potential to continue their ascent. Looking at the daily chart, it’s evident that there has been slow but steady growth in recent weeks and months. This type of growth can be considered inertial and might continue for an indefinite period. It’s worth noting that while the Fed raises rates, the dollar keeps falling. The Bank of England and the ECB also raise their rates, but why do the euro and the pound rise while the dollar does not? If all the Fed’s rate hikes were anticipated in advance (apparently as early as last year?), then why weren’t the rate hikes by the ECB and the Bank of England anticipated in advance, especially when both are approaching their peak values?
Another question arises concerning the economic conditions of each country. Objectively, the American economy appears much stronger than the European or British economies. Jerome Powell stated yesterday that no monetary committee expects a recession anymore. However, in Britain or the EU, a recession is possible, considering that inflation is higher, rates need to continue rising, and economic growth rates have been zero for several quarters. Therefore, it is challenging to pinpoint the exact reasons behind the continuous rise of the pound. Nevertheless, we have a trend, so it is prudent to trade in line with it rather than attempting to predict a reversal and its timing.
What did Powell say?
As mentioned, Powell’s rhetoric can be considered “hawkish.” The market has been anticipating the end of the monetary policy tightening cycle for several months. However, Powell reiterated that the July rate hike might not be the last one, emphasizing that “it will all depend on incoming information.” He assured that transitioning to the “two meetings – one rate hike” scheme does not necessarily mean the rate cannot rise in September. He also pointed out that the Fed will have to review two more inflation reports and two labor market reports before the September meeting, and the decision will be based on that data. Powell called for cautious optimism regarding the latest inflation report, stating that “it is just one month.”
Perhaps the key phrase from Powell could be considered, “We are ready to be patient regarding inflation returning to 2%.” Previously, Powell had always insisted on a swift return to the target level. However, he mentioned that inflation will unlikely fall to 2% before 2025. On the other hand, the head of the Fed noted that the U.S. economy managed to avoid a recession, and the question of easing monetary policy will not be on the agenda in 2023.
In all this information, traders could find both “dovish” and “hawkish” elements. They paid more attention to the “dovish” arguments, leading to the dollar’s fall. We must wait for the Bank of England meeting, where rates will also be raised. At this point, the market seems to interpret any conflicting information in favor of the pound once again. By the end of the year, there might be information about the Fed’s readiness to start easing monetary policy, providing the market with new reasons to divest from the American currency.
The average volatility of the GBP/USD pair for the last five trading days as of July 27th is 96 points, considered “average” for the pound/dollar pair. On Thursday, July 27th, we anticipate movements between 1.2855 and 1.3047. A downward reversal of the Heiken Ashi indicator will indicate a possible resumption of the downward trend.
Nearest support levels:
S1 – 1.2939
S2 – 1.2878
S3 – 1.2817
Nearest resistance levels:
R1 – 1.3000
R2 – 1.3062
R3 – 1.3123
Trading recommendations:
Based on the 4-hour timeframe analysis, the GBP/USD pair has established itself above the moving average. It is advisable to hold long positions with targets set at 1.3000 and 1.3047 until the Heiken Ashi indicator shows a downward reversal. On the other hand, short positions can be contemplated if the price consolidates below the moving average, with targets set at 1.2855 and 1.2817.
Explanations for the illustrations:
Linear regression channels – assist in determining the prevailing trend. When both channels align in the same direction, it signifies a strong trend.
Moving average line (settings 20.0, smoothed) – identifies the short-term trend and guides trading direction.
Murray levels – represent target levels for potential price movements and corrections.
Volatility levels (red lines) – indicate the probable price channel within which the pair may trade the next day based on current volatility indicators.
CCI indicator – its entry into the oversold zone (below -250) or the overbought zone (above +250) predicts an imminent trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair continued its upward movement on Wednesday, experiencing a volatility of 85 points. Notably, the British pound gained 85 points on the day of the Fed meeting. From our perspective, the market reacted to all the information it received with significant indifference, and the information itself lacked any prominent or impactful statements or decisions. Therefore, the market’s response was quite reasonable. The pair consolidated above the moving average line, indicating the potential to resume its upward trend. Frankly, nothing is surprising about this, as the pound has been rising for ten months without always having clear reasons or justifications. Nevertheless, the market continues to buy, despite several factors.
In the 24-hour timeframe, the pair failed to solidify below the critical line, similar to the euro. Consequently, both pairs have the potential to continue their ascent. Looking at the daily chart, it’s evident that there has been slow but steady growth in recent weeks and months. This type of growth can be considered inertial and might continue for an indefinite period. It’s worth noting that while the Fed raises rates, the dollar keeps falling. The Bank of England and the ECB also raise their rates, but why do the euro and the pound rise while the dollar does not? If all the Fed’s rate hikes were anticipated in advance (apparently as early as last year?), then why weren’t the rate hikes by the ECB and the Bank of England anticipated in advance, especially when both are approaching their peak values?
Another question arises concerning the economic conditions of each country. Objectively, the American economy appears much stronger than the European or British economies. Jerome Powell stated yesterday that no monetary committee expects a recession anymore. However, in Britain or the EU, a recession is possible, considering that inflation is higher, rates need to continue rising, and economic growth rates have been zero for several quarters. Therefore, it is challenging to pinpoint the exact reasons behind the continuous rise of the pound. Nevertheless, we have a trend, so it is prudent to trade in line with it rather than attempting to predict a reversal and its timing.
What did Powell say?
As mentioned, Powell’s rhetoric can be considered “hawkish.” The market has been anticipating the end of the monetary policy tightening cycle for several months. However, Powell reiterated that the July rate hike might not be the last one, emphasizing that “it will all depend on incoming information.” He assured that transitioning to the “two meetings – one rate hike” scheme does not necessarily mean the rate cannot rise in September. He also pointed out that the Fed will have to review two more inflation reports and two labor market reports before the September meeting, and the decision will be based on that data. Powell called for cautious optimism regarding the latest inflation report, stating that “it is just one month.”
Perhaps the key phrase from Powell could be considered, “We are ready to be patient regarding inflation returning to 2%.” Previously, Powell had always insisted on a swift return to the target level. However, he mentioned that inflation will unlikely fall to 2% before 2025. On the other hand, the head of the Fed noted that the U.S. economy managed to avoid a recession, and the question of easing monetary policy will not be on the agenda in 2023.
In all this information, traders could find both “dovish” and “hawkish” elements. They paid more attention to the “dovish” arguments, leading to the dollar’s fall. We must wait for the Bank of England meeting, where rates will also be raised. At this point, the market seems to interpret any conflicting information in favor of the pound once again. By the end of the year, there might be information about the Fed’s readiness to start easing monetary policy, providing the market with new reasons to divest from the American currency.
The average volatility of the GBP/USD pair for the last five trading days as of July 27th is 96 points, considered “average” for the pound/dollar pair. On Thursday, July 27th, we anticipate movements between 1.2855 and 1.3047. A downward reversal of the Heiken Ashi indicator will indicate a possible resumption of the downward trend.
Nearest support levels:
S1 – 1.2939
S2 – 1.2878
S3 – 1.2817
Nearest resistance levels:
R1 – 1.3000
R2 – 1.3062
R3 – 1.3123
Trading recommendations:
Based on the 4-hour timeframe analysis, the GBP/USD pair has established itself above the moving average. It is advisable to hold long positions with targets set at 1.3000 and 1.3047 until the Heiken Ashi indicator shows a downward reversal. On the other hand, short positions can be contemplated if the price consolidates below the moving average, with targets set at 1.2855 and 1.2817.
Explanations for the illustrations:
Linear regression channels – assist in determining the prevailing trend. When both channels align in the same direction, it signifies a strong trend.
Moving average line (settings 20.0, smoothed) – identifies the short-term trend and guides trading direction.
Murray levels – represent target levels for potential price movements and corrections.
Volatility levels (red lines) – indicate the probable price channel within which the pair may trade the next day based on current volatility indicators.
CCI indicator – its entry into the oversold zone (below -250) or the overbought zone (above +250) predicts an imminent trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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