Overview of the GBP/USD pair. June 6. The pound has quite logically collapsed. The Fed’s plans for the rate.
June 6, 2023 6:24 am
The GBP/USD currency pair continued its decline on Monday, which had started on Friday. Recall that on Friday, a single report triggered a strong US dollar. This report is the Nonfarm Payrolls. In recent months, many analysts have regularly claimed that the US labor market is in recession, with the number of jobs created decreasing monthly. Therefore, the situation is expected to worsen further, which may force the Federal Reserve (Fed) to ease its monetary policy earlier than scheduled. However, every new Nonfarm report proves only one thing: the labor market is in good shape. As previously noted, a normal report value can be considered in the 200-250 thousand range. For several consecutive months, we have been observing precisely such figures. There has not been a report below 200 thousand in the last 12 months.
Therefore, the Fed has the opportunity to maintain the rate at its maximum level and to continue tightening its monetary policy. And this combination of factors should support the dollar, not the pound. Now let’s look at the technical picture. The British pound has been confidently rising for the past nine months. Moreover, it has been challenging to pinpoint the reasons for its growth in the last three months. As a result, it has become overbought and unreasonably expensive. What kind of movement can we expect from a pair that is not only overbought and lacks factors for new growth but also faces fundamental and macroeconomic pressures for its decline? That’s why we have advocated and continue to advocate for the decline of the British currency. The first target we still see is the level of 1.2170, which corresponds to the Senkou Span B line.
The Fed can raise the rate in both June and July.
According to the FedWatch tool, the current rate hike probability at the June meeting is only 22%. Just a week ago, the probability exceeded 50%. We believe that the market has not paid due attention to a whole series of “hawkish” comments from members of the Fed’s monetary committee. Or perhaps it paid too much attention to the words of other Fed officials about “raising the rate once every two meetings.” However, the market believes the next tightening can be expected in July. The probability of a July hike is currently at 54%. Either way, we are talking about an unplanned rate hike. The market did not factor in a dollar exchange rate increase above 5.25%. However, the current labor market state allows the US regulator to raise the rate one or two more times. And this, in turn, supports the dollar, which should grow even without this factor.
Separately, it should be noted that the situation with the US debt ceiling has been resolved. Joe Biden signed the relevant document, so we can put a bold period in this saga. The US dollar did not react much to this saga and had been rising more than falling in the past month, which is at least illogical for a country’s currency on the brink of default. This influence on market sentiment is neutralized, so nothing should prevent the dollar from rising now.
We can still expect 1-2 rate hikes from the Bank of England, but the market has already priced them in. No matter how you look at it, the pound has no grounds for further growth. The market quickly worked off the oversold condition of the CCI indicator, which occurred accidentally on May 11th, and now the decline can continue. It failed to consolidate above the critical line in the 24-hour time frame, so the decline can continue. There will be few macroeconomic statistics this week, so nothing should hinder the decline.
The average volatility of the GBP/USD pair for the past five trading days is 109 points. For the pound/dollar pair, this value is considered “average.” Therefore, on Tuesday, June 6th, we expect movements within a channel bounded by the levels of 1.2327 and 1.2545. A reversal of the Heiken Ashi indicator upwards will signal a possible resumption of an upward movement.
Nearest support levels:
S1 – 1.2421
S2 – 1.2390
S3 – 1.2360
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2482
R3 – 1.2512
Trading recommendations:
The GBP/USD pair on the 4-hour timeframe has settled back below the moving average line, so short positions with targets at 1.2360 and 1.2329 are currently relevant. This should be opened if the price bounces off the moving average from below. Long positions can be considered if the price stabilizes above the moving average with targets at 1.2512 and 1.2543.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. It indicates a strong current trend if both are directed in the same direction.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and 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 move the next day based on current volatility indicators.
0000
CCI indicator – its entry into the oversold zone (below -250) or overbought zone (above +250) indicates an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair continued its decline on Monday, which had started on Friday. Recall that on Friday, a single report triggered a strong US dollar. This report is the Nonfarm Payrolls. In recent months, many analysts have regularly claimed that the US labor market is in recession, with the number of jobs created decreasing monthly. Therefore, the situation is expected to worsen further, which may force the Federal Reserve (Fed) to ease its monetary policy earlier than scheduled. However, every new Nonfarm report proves only one thing: the labor market is in good shape. As previously noted, a normal report value can be considered in the 200-250 thousand range. For several consecutive months, we have been observing precisely such figures. There has not been a report below 200 thousand in the last 12 months.
Therefore, the Fed has the opportunity to maintain the rate at its maximum level and to continue tightening its monetary policy. And this combination of factors should support the dollar, not the pound. Now let’s look at the technical picture. The British pound has been confidently rising for the past nine months. Moreover, it has been challenging to pinpoint the reasons for its growth in the last three months. As a result, it has become overbought and unreasonably expensive. What kind of movement can we expect from a pair that is not only overbought and lacks factors for new growth but also faces fundamental and macroeconomic pressures for its decline? That’s why we have advocated and continue to advocate for the decline of the British currency. The first target we still see is the level of 1.2170, which corresponds to the Senkou Span B line.
The Fed can raise the rate in both June and July.
According to the FedWatch tool, the current rate hike probability at the June meeting is only 22%. Just a week ago, the probability exceeded 50%. We believe that the market has not paid due attention to a whole series of “hawkish” comments from members of the Fed’s monetary committee. Or perhaps it paid too much attention to the words of other Fed officials about “raising the rate once every two meetings.” However, the market believes the next tightening can be expected in July. The probability of a July hike is currently at 54%. Either way, we are talking about an unplanned rate hike. The market did not factor in a dollar exchange rate increase above 5.25%. However, the current labor market state allows the US regulator to raise the rate one or two more times. And this, in turn, supports the dollar, which should grow even without this factor.
Separately, it should be noted that the situation with the US debt ceiling has been resolved. Joe Biden signed the relevant document, so we can put a bold period in this saga. The US dollar did not react much to this saga and had been rising more than falling in the past month, which is at least illogical for a country’s currency on the brink of default. This influence on market sentiment is neutralized, so nothing should prevent the dollar from rising now.
We can still expect 1-2 rate hikes from the Bank of England, but the market has already priced them in. No matter how you look at it, the pound has no grounds for further growth. The market quickly worked off the oversold condition of the CCI indicator, which occurred accidentally on May 11th, and now the decline can continue. It failed to consolidate above the critical line in the 24-hour time frame, so the decline can continue. There will be few macroeconomic statistics this week, so nothing should hinder the decline.
The average volatility of the GBP/USD pair for the past five trading days is 109 points. For the pound/dollar pair, this value is considered “average.” Therefore, on Tuesday, June 6th, we expect movements within a channel bounded by the levels of 1.2327 and 1.2545. A reversal of the Heiken Ashi indicator upwards will signal a possible resumption of an upward movement.
Nearest support levels:
S1 – 1.2421
S2 – 1.2390
S3 – 1.2360
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2482
R3 – 1.2512
Trading recommendations:
The GBP/USD pair on the 4-hour timeframe has settled back below the moving average line, so short positions with targets at 1.2360 and 1.2329 are currently relevant. This should be opened if the price bounces off the moving average from below. Long positions can be considered if the price stabilizes above the moving average with targets at 1.2512 and 1.2543.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. It indicates a strong current trend if both are directed in the same direction.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and 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 move the next day based on current volatility indicators.
0000
CCI indicator – its entry into the oversold zone (below -250) or overbought zone (above +250) indicates an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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