GBP/USD also traded lower on Wednesday. We saw a bearish trend reversal a few weeks ago, and on the 24-hour timeframe, the global downward trend has persisted throughout the period when the pound showed an illogical rise. Yes, the correction was very long and quite complex, but the global downtrend remained intact. Moreover, if you look at the monthly timeframe, it becomes clear that an even more global trend is also downward and has been ongoing for 16 years. During this time, the British pound has depreciated against the dollar by half. Sixteen years ago, in 2007, it was worth $2.12. As a result, it fell almost to price parity. Thus, we can definitely say that the largest global trend has not changed, nor has the global trend on the 24-hour timeframe.
Therefore, we only consider selling the British currency, as before. Currently, much depends on the monetary policies of the Federal Reserve and the Bank of England, and the market has long refused to accept the fact that there will be no 5-6 rate cuts in the US this year. At the same time, the BoE could have started easing in June, but in fact, it will start in August. Of course, by August, inflation in the UK might slightly rise, but its current value is 2%. Even if it accelerates to 2.4-2.5%, we will still consider that the BoE is ready to ease monetary policy.
It turns out that the British central bank will start lowering its rate earlier than the American one. On what basis did the pound rise in the last 6-8 months? Only on the market's expectations of a Fed rate cut in March and then in June. This did not happen and will not happen for obvious reasons. Therefore, first, we need to restore the fair value of the GBP/USD pair, which has been rising for a long time and grew stronger than the fundamental background implied. After the fair value is restored, the pound may continue to fall for some time, as generally, there is a downtrend, and the price never reverses near the balanced rate.
The faster the BoE starts lowering the rate, the more the pound will fall. It is quite possible that we are in a period where the pair will follow an uptrend, as the pound cannot depreciate for decades. However, this period of time may extend for a year or even two. Therefore, in the near future, we will not be looking upwards. The first global target is the level of 1.2300, but this is only an intermediate goal. We expect the pair to fall much lower, down to the 1.18th level.
On the 4-hour timeframe, each consolidation above the moving average will be considered a relatively strong correction. Each trader decides for themselves whether to work out the corrections. The final estimate of the UK Q1 GDP report will be released this week, but we don't believe that this report can provoke a strong market reaction.
The average volatility of GBP/USD over the last five trading days is 65 pips. This is considered a "moderately low" value for the pair. Today, we expect GBP/USD to move within a range bounded by the levels of 1.2561 and 1.2691. The higher linear regression channel is pointing upwards, which suggests that the upward trend will continue. The CCI indicator entered the overbought and oversold areas recently.
Nearest support levels:
S1 - 1.2665
S2 - 1.2634
S3 - 1.2604
Nearest resistance levels:
R1 - 1.2695
R2 - 1.2726
R3 - 1.2756
Trading Recommendations:
The GBP/USD pair has once again consolidated below the moving average line and is trying to break the upward trend of the previous months. Therefore, after consolidating below the moving average line and overcoming the area of 1.2680-1.2695, the pound has better chances of falling further. However, traders should be cautious with any positions on the British currency. There is still no reason to buy it, and it is risky to sell, because the market ignored the fundamental and macroeconomic background for two months, and often simply refused to sell the pair. Nevertheless, only short positions can be considered relevant with targets of 1.2604 and 1.2561, if we are talking about a logical and natural movement.
Explanation of Illustrations:
- Linear Regression Channels – Helps determine the current trend. If both are directed in the same direction, it means the trend is currently strong.
- Moving Average Line (settings 20.0, smoothed) – Determines the short-term trend and the direction in which trading should currently be conducted.
- Murray Levels – Target levels for movements and corrections.
- Volatility Levels (red lines) – The probable price channel in which the pair will spend the next day, based on current volatility indicators.
- CCI Indicator – Its entry into the oversold area (below -250) or the overbought area (above +250) means that a trend reversal in the opposite direction is imminent.
