Overview of the GBP/USD pair. October 4th. The Fed is likely to raise rates again in November
October 4, 2023 7:26 am
The GBP/USD currency pair remained stationary on Tuesday with minimal volatility. Throughout the day, there were no noteworthy movements, and the trend continues to be bearish, with the pound potentially continuing its significant decline at any time. It’s worth noting that at this point, we are more inclined towards a correction rather than a further decline, even though we have previously discussed the bleak situation of the British currency. However, the pound has been falling for over 2 months, and during this time, corrections have been rare and minimal. Therefore, we fully support the idea of the pair continuing to decline, considering it logical and justified, but at the same time, we believe that a correction is due.
Recall that the CCI indicator has entered oversold territory three times, which are strong buy signals. Additionally, the fundamental and macroeconomic backdrop is not currently so bleak as to warrant the pound’s nearly continuous descent. In other words, while we have long argued that the pound should move southward, its ongoing decline appears somewhat peculiar. Nevertheless, we have not received any buy signals or indications of a trend reversal to the upside. Without technical signals, attempting to predict the pair’s future movements is highly speculative. The oversold condition of the CCI indicator is a strong signal, but it is not yet confirmed by other factors.
In the 24-hour time frame, the pair continues its downward movement without encountering any significant obstacles. We believe that it can easily continue to drop until it reaches the level of 1.1844 (38.2% Fibonacci retracement). However, further decline may start to look somewhat unusual, although it cannot be ruled out. Like with the euro, we believe that the fundamental backdrop is currently relatively weak, and market decisions are primarily influenced by other factors.
Loretta Mester supports further tightening. Despite the fact that the Bank of England may raise the key interest rate once more, it no longer holds any significance for the British currency. However, the Federal Reserve (Fed), which everyone anticipates will conclude its monetary policy tightening cycle, has yet to provide any signals of readiness to halt rate hikes. Furthermore, traders have received a significant number of signals indicating a new round of policy tightening in November, which aligns with the Fed’s plan to raise rates once every two meetings. This additional tightening does not seem unusual, as inflation in the United States accelerated in July and August.
Representatives of the Fed are adding fuel to the fire. For instance, Cleveland Fed President Loretta Mester stated on Monday that rates are likely to be raised again in 2023. She noted the “good trajectory” of the American economy and a strong labor market. According to her, all of this will lead to further reductions in inflation, but the path to reaching 2% may be lengthy, and rates will have to be kept at high levels for an extended period. Mrs. Mester also highlighted very high GDP growth rates at the current rate, allowing for the maintenance of a “restrictive” monetary policy for a longer duration. At the same time, inflation risks are skewed to the upside, and unpleasant surprises are possible.
We believe that the latest statement from the Fed representative can only be interpreted as “hawkish.” This means that the dollar is receiving a bit more support from the fundamentals. However, as we have previously mentioned, the strengthening of the dollar is logical and justified, so we see nothing prejudiced if both currency pairs continue to decline for some time.
The average volatility of the GBP/USD pair over the past 5 trading days, as of October 4th, is 88 pips. For the pound/dollar pair, this value is considered “average.” Therefore, on Wednesday, October 4th, we expect the pair to move within the range of 1.1990 and 1.2166. A reversal of the Heiken Ashi indicator upwards will signal a new stage of an ascending correction.
Nearest support levels:
S1 – 1.2024
S2 – 1.1963
S3 – 1.1902
Nearest resistance levels:
R1 – 1.2085
R2 – 1.2146
R3 – 1.2207
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair has resumed its downward movement and continues to update its lows. Therefore, at this time, it is advisable to maintain short positions with targets at 1.2024 and 1.1990 until the price consolidates above the moving average. Consideration of long positions should be postponed until the price consolidates above the moving average line, with targets at 1.2207 and 1.2268.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are pointing in the same direction, it indicates a strong trend.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and direction for trading.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel in which the pair will move in the next day based on current volatility indicators.
CCI indicator – its entry into the overbought territory (above +250) or oversold territory (below -250) indicates an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
The GBP/USD currency pair remained stationary on Tuesday with minimal volatility. Throughout the day, there were no noteworthy movements, and the trend continues to be bearish, with the pound potentially continuing its significant decline at any time. It’s worth noting that at this point, we are more inclined towards a correction rather than a further decline, even though we have previously discussed the bleak situation of the British currency. However, the pound has been falling for over 2 months, and during this time, corrections have been rare and minimal. Therefore, we fully support the idea of the pair continuing to decline, considering it logical and justified, but at the same time, we believe that a correction is due.
Recall that the CCI indicator has entered oversold territory three times, which are strong buy signals. Additionally, the fundamental and macroeconomic backdrop is not currently so bleak as to warrant the pound’s nearly continuous descent. In other words, while we have long argued that the pound should move southward, its ongoing decline appears somewhat peculiar. Nevertheless, we have not received any buy signals or indications of a trend reversal to the upside. Without technical signals, attempting to predict the pair’s future movements is highly speculative. The oversold condition of the CCI indicator is a strong signal, but it is not yet confirmed by other factors.
In the 24-hour time frame, the pair continues its downward movement without encountering any significant obstacles. We believe that it can easily continue to drop until it reaches the level of 1.1844 (38.2% Fibonacci retracement). However, further decline may start to look somewhat unusual, although it cannot be ruled out. Like with the euro, we believe that the fundamental backdrop is currently relatively weak, and market decisions are primarily influenced by other factors.
Loretta Mester supports further tightening. Despite the fact that the Bank of England may raise the key interest rate once more, it no longer holds any significance for the British currency. However, the Federal Reserve (Fed), which everyone anticipates will conclude its monetary policy tightening cycle, has yet to provide any signals of readiness to halt rate hikes. Furthermore, traders have received a significant number of signals indicating a new round of policy tightening in November, which aligns with the Fed’s plan to raise rates once every two meetings. This additional tightening does not seem unusual, as inflation in the United States accelerated in July and August.
Representatives of the Fed are adding fuel to the fire. For instance, Cleveland Fed President Loretta Mester stated on Monday that rates are likely to be raised again in 2023. She noted the “good trajectory” of the American economy and a strong labor market. According to her, all of this will lead to further reductions in inflation, but the path to reaching 2% may be lengthy, and rates will have to be kept at high levels for an extended period. Mrs. Mester also highlighted very high GDP growth rates at the current rate, allowing for the maintenance of a “restrictive” monetary policy for a longer duration. At the same time, inflation risks are skewed to the upside, and unpleasant surprises are possible.
We believe that the latest statement from the Fed representative can only be interpreted as “hawkish.” This means that the dollar is receiving a bit more support from the fundamentals. However, as we have previously mentioned, the strengthening of the dollar is logical and justified, so we see nothing prejudiced if both currency pairs continue to decline for some time.
The average volatility of the GBP/USD pair over the past 5 trading days, as of October 4th, is 88 pips. For the pound/dollar pair, this value is considered “average.” Therefore, on Wednesday, October 4th, we expect the pair to move within the range of 1.1990 and 1.2166. A reversal of the Heiken Ashi indicator upwards will signal a new stage of an ascending correction.
Nearest support levels:
S1 – 1.2024
S2 – 1.1963
S3 – 1.1902
Nearest resistance levels:
R1 – 1.2085
R2 – 1.2146
R3 – 1.2207
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair has resumed its downward movement and continues to update its lows. Therefore, at this time, it is advisable to maintain short positions with targets at 1.2024 and 1.1990 until the price consolidates above the moving average. Consideration of long positions should be postponed until the price consolidates above the moving average line, with targets at 1.2207 and 1.2268.
Explanations for the illustrations:
Linear regression channels – help determine the current trend. If both are pointing in the same direction, it indicates a strong trend.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and direction for trading.
Murray levels – target levels for movements and corrections.
Volatility levels (red lines) – the likely price channel in which the pair will move in the next day based on current volatility indicators.
CCI indicator – its entry into the overbought territory (above +250) or oversold territory (below -250) indicates an impending trend reversal in the opposite direction.
The material has been provided by InstaForex Company – www.instaforex.com
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