The GBP/USD currency pair also recovered to the moving average line on Monday but could not surpass it. Movements in both major currency pairs have been identical in recent weeks, so everything mentioned in the article about EUR/USD is also applicable to the GBP/USD pair. Therefore, the key question for the British currency today is whether it will overcome the moving average. It should be noted that today there will be macroeconomic publications in the UK and the USA that could influence the pair's movement. Yes, these may not be the most important reports, but even a 30–40 point rise for the British pound would mean that the moving average has been crossed. This, in turn, would open the opportunity for the pair to rise back to the level of 1.2329 or even slightly higher.
As for the overall market trend, it remains downward. Even if the correction continues this week, the pound is unlikely to be able to rise back to levels of 1.25, 1.26, or higher. There simply are no grounds for that. It is understood that the market may return to baseless pound buying, as was the case in the first half of this year, but when making forecasts, we still try to take all factors into account. And if you consider them, it turns out that there are no reasons for the British currency to rise.
In the 24-hour timeframe, the pair bounced off the Fibonacci level of 50.0% and the critical line, which opens the way further south. The target is 1.1844. We believe that this target will be achieved in any case, whether the correction continues first or if the pair moves downward from its current position.
The Chief Economist of the Bank of England understands the complexity of the situation.
The Bank of England remains a "dark horse" for the market. It seems that everything is clear. However, at the last meeting, the rate was not raised, but it is unlikely that the regulator will abruptly end the tightening cycle. Moreover, inflation remains very high. So, we believe that another rate hike can be expected. On Saturday, Mr. Bailey, the head of the Bank of England, made some statements as part of an Institute of International Finance event. In particular, he said that the Bank of England's actions would remain strict. However, at the same time, he suggested that this was more about keeping rates at a restrictive level for a long time than new increases.
On Monday, the Chief Economist of the Bank of England, Huw Pill, repeated his rhetoric. In particular, he stated that the regulator had already done a lot. He said that wages increasingly looked like an exception. Probably, he meant that the growth rates are declining, but there is no stability in this matter. By the way, wage and unemployment reports were just published five minutes ago. The figures are as follows:
Wages grew by 8.1% y/y in August, including bonuses. Without bonuses, wages increased by 7.8% y/y. These values are generally in line with expert forecasts, and the figures themselves are actually the highest in a very long time. Therefore, it is currently difficult to understand what Pill and Bailey are counting on. However, both continue to insist that inflation will slow down to 5% by the end of the year, which would be the "first target" for the Bank of England. The most important thing is that rates in the UK could rise one more time, which does not support the British currency. Accordingly, the Bank of England's stance remains "moderately hawkish," which is not enough for a strong rally in the British currency.
The average volatility of the GBP/USD pair over the past 5 trading days, as of October 17th, is 99 points. For the pound/dollar pair, this value is considered "average." As a result, on Tuesday, October 17, we anticipate movements that stay within the range defined by the levels of 1.2098 and 1.2296. A reversal of the Heiken Ashi indicator downward will signal a possible resumption of the downtrend.
Nearest support levels:
S1 – 1.2146
S2 – 1.2085
S3 – 1.2024
Nearest resistance levels:
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading recommendations:
In the 4-hour timeframe, the GBP/USD pair has dropped below the moving average. Therefore, it is possible to consider new short positions with targets at 1.2146 and 1.2098 in case the price bounces off the moving average. If the price firmly establishes itself above the moving average, long positions with targets at 1.2296 and 1.2329 will become relevant once again. We support the second scenario.
Explanations for the illustrations:
Linear regression channels - help determine the current trend. If both are pointing 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 trading.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair is expected to trade over the next day based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or overbought area (above +250) signals an approaching trend reversal in the opposite direction.
