Overview of the GBP/USD pair. November 6th. The British pound has risen, but the overall picture remains unchanged
November 6, 2023 11:26 am
The GBP/USD currency pair also showed a strong upward movement on Friday, with volatility exceeding 200 points, which we haven’t seen in a long time. Thus, the British pound has finally shown the correction we’ve been waiting for over the past few weeks. Now, the upward correction can end at any moment because the dominant trend remains downward. Friday’s movement had a somewhat random character. If all three major US reports had not been disappointing, we probably would not have seen any upward movement. Therefore, the rise of the British pound is not related to a strong market desire to buy. It’s speculative, impulsive growth that can end very quickly.
The CCI indicator has entered overbought territory for the second time, just like the euro. The first time this happened was on October 24th. The CCI indicator’s signal line did not cross the “+250” level, but it came close to it. We believe this can be considered a sell signal. Currently, the signal line has broken through and passed the “+250” level, so we can expect a retracement down soon, probably today or tomorrow. It’s important to note that CCI indicator signals tend to be confirmed a bit later. Typically, this indicator shows overbought and oversold conditions. The opposite movement may start in a week or two.
However, considering the fundamental background and these signals together, it becomes clear that the pound lacks the momentum to continue moving north. We’ve been saying this for the past month. We expect a decline in the coming months to the level of 1.1840.
The pound is preparing for a new decline. The current situation of the British pound is somewhat similar to that of the euro. Yes, the British pound rose by almost 200 points on Friday, but before that, it had been virtually stationary for almost a month. It doesn’t make sense to dissect individual reports from the United States or the UK right now; instead, we should look at the overall picture. Yes, recent US reports were disappointing, but when compared to the British data, the US still comes out ahead. In the UK, inflation is twice as high, the interest rate is lower, GDP growth is absent, salaries are increasing much faster, and unemployment is higher. If the Bank of England were to maintain a strict “hawkish” stance and signal an intention to continue raising interest rates, the pound would have a solid advantage. However, the British regulator is not leaning in that direction. So, the fundamental outlook remains the same.
It boils down to the fact that the fundamental support currently favors the US dollar rather than the pound. If we also consider the year-long rise of the British currency, during which it increased for six months without a clear reason, it becomes apparent that the southern impulse has not run out. The market has simply taken a one-month pause because it can’t sell the pair constantly, every day. Corrections are also necessary, and they should occur from time to time. Therefore, the movement we’ve observed over the last three months is entirely logical and justified.
This week, the UK will release its GDP report for the third quarter, and this report may be considered the most important. But what can we expect from the UK economy? Growth will either be zero or negative. Even if, by some miracle, the economy grows by 0.1-0.2%, what difference will it make? The US economy grew by 4.9% in the third quarter. Jerome Powell will also give a speech, but what can the head of the Federal Reserve say that wasn’t addressed in the last Fed meeting just last week? The only thing that’s really interesting is Powell’s comments on Friday’s statistics. However, it’s far from certain that he will even touch on this topic in his speech. For the Federal Reserve, inflation remains the primary indicator, but the monetary stance has recently weakened because inflation is rising, and we haven’t heard any new promises to raise the interest rate.
The average volatility of the GBP/USD pair over the last 5 trading days is 103 points. For the GBP/USD pair, this value is considered “average.” Therefore, we anticipate movement within the range defined by the levels of 1.2277 and 1.2483 on Monday, November 6. A reversal of the Heiken Ashi indicator downward will signal a new attempt to resume the medium-term trend.
Nearest support levels:
S1 – 1.2329
S2 – 1.2268
S3 – 1.2207
Nearest resistance levels:
R1 – 1.2390
R2 – 1.2451
R3 – 1.2512
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it means the trend is currently strong.
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 likely trade in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250) signifies an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair also showed a strong upward movement on Friday, with volatility exceeding 200 points, which we haven’t seen in a long time. Thus, the British pound has finally shown the correction we’ve been waiting for over the past few weeks. Now, the upward correction can end at any moment because the dominant trend remains downward. Friday’s movement had a somewhat random character. If all three major US reports had not been disappointing, we probably would not have seen any upward movement. Therefore, the rise of the British pound is not related to a strong market desire to buy. It’s speculative, impulsive growth that can end very quickly.
The CCI indicator has entered overbought territory for the second time, just like the euro. The first time this happened was on October 24th. The CCI indicator’s signal line did not cross the “+250” level, but it came close to it. We believe this can be considered a sell signal. Currently, the signal line has broken through and passed the “+250” level, so we can expect a retracement down soon, probably today or tomorrow. It’s important to note that CCI indicator signals tend to be confirmed a bit later. Typically, this indicator shows overbought and oversold conditions. The opposite movement may start in a week or two.
However, considering the fundamental background and these signals together, it becomes clear that the pound lacks the momentum to continue moving north. We’ve been saying this for the past month. We expect a decline in the coming months to the level of 1.1840.
The pound is preparing for a new decline. The current situation of the British pound is somewhat similar to that of the euro. Yes, the British pound rose by almost 200 points on Friday, but before that, it had been virtually stationary for almost a month. It doesn’t make sense to dissect individual reports from the United States or the UK right now; instead, we should look at the overall picture. Yes, recent US reports were disappointing, but when compared to the British data, the US still comes out ahead. In the UK, inflation is twice as high, the interest rate is lower, GDP growth is absent, salaries are increasing much faster, and unemployment is higher. If the Bank of England were to maintain a strict “hawkish” stance and signal an intention to continue raising interest rates, the pound would have a solid advantage. However, the British regulator is not leaning in that direction. So, the fundamental outlook remains the same.
It boils down to the fact that the fundamental support currently favors the US dollar rather than the pound. If we also consider the year-long rise of the British currency, during which it increased for six months without a clear reason, it becomes apparent that the southern impulse has not run out. The market has simply taken a one-month pause because it can’t sell the pair constantly, every day. Corrections are also necessary, and they should occur from time to time. Therefore, the movement we’ve observed over the last three months is entirely logical and justified.
This week, the UK will release its GDP report for the third quarter, and this report may be considered the most important. But what can we expect from the UK economy? Growth will either be zero or negative. Even if, by some miracle, the economy grows by 0.1-0.2%, what difference will it make? The US economy grew by 4.9% in the third quarter. Jerome Powell will also give a speech, but what can the head of the Federal Reserve say that wasn’t addressed in the last Fed meeting just last week? The only thing that’s really interesting is Powell’s comments on Friday’s statistics. However, it’s far from certain that he will even touch on this topic in his speech. For the Federal Reserve, inflation remains the primary indicator, but the monetary stance has recently weakened because inflation is rising, and we haven’t heard any new promises to raise the interest rate.
The average volatility of the GBP/USD pair over the last 5 trading days is 103 points. For the GBP/USD pair, this value is considered “average.” Therefore, we anticipate movement within the range defined by the levels of 1.2277 and 1.2483 on Monday, November 6. A reversal of the Heiken Ashi indicator downward will signal a new attempt to resume the medium-term trend.
Nearest support levels:
S1 – 1.2329
S2 – 1.2268
S3 – 1.2207
Nearest resistance levels:
R1 – 1.2390
R2 – 1.2451
R3 – 1.2512
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both channels point in the same direction, it means the trend is currently strong.
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 likely trade in the next 24 hours, based on current volatility indicators.
CCI indicator – its entry into the oversold area (below -250) or overbought area (above +250) signifies an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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