Overview of the GBP/USD pair. October 19th. Federal Reserve representatives continue to flaunt “dovish” statements
October 19, 2023 9:26 am
The GBP/USD currency pair on Wednesday failed to solidify its position above the moving average line, as we expected. The rebound from the moving average was quite eloquent, but we wouldn’t rush to open the champagne for the resumption of the downward trend. As for the euro, the movement increasingly resembles a flat. In the case of the pound, the situation looks more promising, but the movements are still not very clear. We would say that the technical picture for the British currency looks more convincing, so we recommend working with this pair more than with the EUR/USD pair.
If we ignore the weak upward correction against a 1100-point drop, everything is going as planned. We have repeatedly mentioned that we do not expect anything other than a decline in the British pound. We simply expected a stronger correction, and at the moment, it cannot be said that it is 100% complete. The price can easily drop to the last local minimum around the level of 1.2054 and then start a new phase of correction. Therefore, we still believe that the fall of the British pound is inevitable, but we allow for another phase of correction. Moreover, the current fundamental and macroeconomic backgrounds are quite neutral and do not exert significant influence on the pair’s movement.
In the 24-hour timeframe, the technical picture is more straightforward and expressive. The pair has corrected (if a 280-point movement can be called a correction) to the Kijun-sen line and the 50.0% Fibonacci level but failed to overcome them. Thus, everything is pointing towards the resumption of the drop in the British pound. But, we reiterate, the current situation is not very clear and favorable.
Christopher Waller considers various rate options. Lately, whispers from the Federal Reserve have only included statements that the key rate should not be raised further. Despite the fact that inflation in the United States has been rising for three consecutive months, several members of the monetary committee have expressed opposition to further tightening. Christopher Waller is the fifth person on the list of “doves” who, yesterday, stated that there is no need to rush with raising the key rate. Mr. Waller noted that the Fed should take a wait-and-see approach to assess the state of the economy and its development before making new decisions on rates. If the real sector of the economy cools down, the regulator will have more reasons not to rush with further monetary policy tightening. If inflation starts to accelerate again, then a new rate hike may be required.
Waller’s remarks suggest that the Federal Reserve has not ruled out further tightening. However, the Fed is now planning to increase interest rates only once every two meetings, as initially announced in the summer, and solely in cases of pressing necessity. In our assessment, such a necessity has already emerged, considering that inflation has been on the rise for three months and is currently nearing 4%, well beyond the 2% target. Notably, the market isn’t anticipating a rate hike in November, so we should anticipate such a decision at the final meeting of 2023, which will take place in December. In any scenario, this signifies another round of tightening, notwithstanding the more accommodative language used by other Federal Reserve officials.
In the context of the Bank of England, the possibility of one or even two additional rate hikes is being considered. However, for the British currency, this doesn’t bode well. The market has already factored in the entire tightening cycle, leaving the primary question open – to what extent the U.S. dollar will strengthen in the months ahead. As it appears, the currency pair is struggling to mount a correction against its downward trajectory.
The average volatility of the GBP/USD pair over the last 5 trading days as of October 19 is 101 points. For the pound/dollar pair, this value is considered “average.” As a result, we anticipate movement on Thursday, October 19, within the range defined by the levels of 1.2023 and 1.2225. A reversal of the Heiken Ashi indicator upwards will signal a possible resumption of the upward correction.
Nearest support levels:
S1 – 1.2115
S2 – 1.2085
S3 – 1.2054
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2177
R3 – 1.2207
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair has dropped below the moving average. Consequently, short positions can be maintained with targets at 1.2085 and 1.2024 until the Heiken Ashi indicator reverses upward. In the event of the price consolidating above the moving average, long positions with targets at 1.2268 and 1.2299 will become relevant once again.
Explanations for the illustrations:
Linear regression channels – aid in determining the current trend. If both channels point in the same direction, it indicates a strong current trend.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction for current trading.
Murrey levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel in which the pair will trade over the next day, based on current volatility indicators.
CCI indicator – its entry into the oversold region (below -250) or the overbought region (above +250) suggests an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair on Wednesday failed to solidify its position above the moving average line, as we expected. The rebound from the moving average was quite eloquent, but we wouldn’t rush to open the champagne for the resumption of the downward trend. As for the euro, the movement increasingly resembles a flat. In the case of the pound, the situation looks more promising, but the movements are still not very clear. We would say that the technical picture for the British currency looks more convincing, so we recommend working with this pair more than with the EUR/USD pair.
If we ignore the weak upward correction against a 1100-point drop, everything is going as planned. We have repeatedly mentioned that we do not expect anything other than a decline in the British pound. We simply expected a stronger correction, and at the moment, it cannot be said that it is 100% complete. The price can easily drop to the last local minimum around the level of 1.2054 and then start a new phase of correction. Therefore, we still believe that the fall of the British pound is inevitable, but we allow for another phase of correction. Moreover, the current fundamental and macroeconomic backgrounds are quite neutral and do not exert significant influence on the pair’s movement.
In the 24-hour timeframe, the technical picture is more straightforward and expressive. The pair has corrected (if a 280-point movement can be called a correction) to the Kijun-sen line and the 50.0% Fibonacci level but failed to overcome them. Thus, everything is pointing towards the resumption of the drop in the British pound. But, we reiterate, the current situation is not very clear and favorable.
Christopher Waller considers various rate options. Lately, whispers from the Federal Reserve have only included statements that the key rate should not be raised further. Despite the fact that inflation in the United States has been rising for three consecutive months, several members of the monetary committee have expressed opposition to further tightening. Christopher Waller is the fifth person on the list of “doves” who, yesterday, stated that there is no need to rush with raising the key rate. Mr. Waller noted that the Fed should take a wait-and-see approach to assess the state of the economy and its development before making new decisions on rates. If the real sector of the economy cools down, the regulator will have more reasons not to rush with further monetary policy tightening. If inflation starts to accelerate again, then a new rate hike may be required.
Waller’s remarks suggest that the Federal Reserve has not ruled out further tightening. However, the Fed is now planning to increase interest rates only once every two meetings, as initially announced in the summer, and solely in cases of pressing necessity. In our assessment, such a necessity has already emerged, considering that inflation has been on the rise for three months and is currently nearing 4%, well beyond the 2% target. Notably, the market isn’t anticipating a rate hike in November, so we should anticipate such a decision at the final meeting of 2023, which will take place in December. In any scenario, this signifies another round of tightening, notwithstanding the more accommodative language used by other Federal Reserve officials.
In the context of the Bank of England, the possibility of one or even two additional rate hikes is being considered. However, for the British currency, this doesn’t bode well. The market has already factored in the entire tightening cycle, leaving the primary question open – to what extent the U.S. dollar will strengthen in the months ahead. As it appears, the currency pair is struggling to mount a correction against its downward trajectory.
The average volatility of the GBP/USD pair over the last 5 trading days as of October 19 is 101 points. For the pound/dollar pair, this value is considered “average.” As a result, we anticipate movement on Thursday, October 19, within the range defined by the levels of 1.2023 and 1.2225. A reversal of the Heiken Ashi indicator upwards will signal a possible resumption of the upward correction.
Nearest support levels:
S1 – 1.2115
S2 – 1.2085
S3 – 1.2054
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2177
R3 – 1.2207
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair has dropped below the moving average. Consequently, short positions can be maintained with targets at 1.2085 and 1.2024 until the Heiken Ashi indicator reverses upward. In the event of the price consolidating above the moving average, long positions with targets at 1.2268 and 1.2299 will become relevant once again.
Explanations for the illustrations:
Linear regression channels – aid in determining the current trend. If both channels point in the same direction, it indicates a strong current trend.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction for current trading.
Murrey levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel in which the pair will trade over the next day, based on current volatility indicators.
CCI indicator – its entry into the oversold region (below -250) or the overbought region (above +250) suggests an approaching trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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