The GBP/USD currency pair exhibited sluggish movement on Thursday. While no significant events were scheduled in the UK or the US that day, Wednesday was packed with notable occurrences. Bank of England Governor Andrew Bailey and Federal Reserve Chair Jerome Powell gave speeches. Although neither made groundbreaking announcements, Bailey did mention the possibility of the BoE lowering its key rate four times by 0.25% each in the coming year. Conversely, Powell noted that the Fed has the flexibility to take its time with monetary policy easing. At first glance, these statements offered no new information to the market. Still, even such well-known facts should have logically triggered a new rise in the US dollar.
Throughout 2024, the market has anticipated monetary policy easing by the Fed—ideally at every meeting and preferably by 0.5%. With only one meeting left this year, the market remains optimistic about significant easing in December. This is despite Powell and several other Fed officials almost explicitly stating that there is no urgency to lower the key rate quickly. The market's expectations continue to price in more aggressive easing than is likely to materialize. Thus, we maintain that the dollar remains undervalued and oversold, even after a two-month decline.
Meanwhile, Bailey signaled that a rate cut in December is unlikely—a point the market appears to trust. Given that UK inflation is rising again (as it is in the US), the BoE will likely cautiously cut rates. The BoE has already been slower than the Fed, especially the ECB, in easing monetary policy. This cautious stance is the primary reason the pound falls less sharply than the euro and rises more robustly.
However, this advantage may not be enough to support the pound in the medium term. The BoE will inevitably lower rates as it faces significant economic growth challenges like those in the EU. The UK economy isn't likely to grow spontaneously—it needs stimulation and favorable conditions, which are currently lacking. High rates and visible economic struggles—exacerbated since Brexit—continue to weigh on growth prospects.
From a technical perspective, the daily chart shows that the price has corrected to the Kijun-sen line of the Ichimoku indicator (default settings). A rebound from this line is likely. Today, crucial reports on unemployment and the labor market will be released in the US, potentially leading to further dollar weakness. However, even if the GBP/USD pair rises today, it will not alter our long-term outlook.
The average volatility of the GBP/USD pair over the last five trading days is 85 pips, categorized as "medium." On Friday, December 6, we expect the pair to move from 1.2664 to 1.2834. The higher linear regression channel is directed downward, indicating a bearish trend. The CCI indicator has formed several bullish divergences and entered oversold territory multiple times. While a correction has begun, its strength remains difficult to predict.
Nearest Support Levels:
- S1: 1.2695
- S2: 1.2573
- S3: 1.2451
Nearest Resistance Levels:
- R1: 1.2817
- R2: 1.2939
- R3: 1.3062
Trading Recommendations:
The GBP/USD pair retains its bearish trend. We still do not recommend long positions, as we believe the market has already priced in all growth factors for the British currency multiple times. For traders using "pure technical analysis," long positions with targets at 1.2817 and 1.2834 are possible if the price moves above the moving average line. However, short positions are currently much more relevant, with a target of 1.2573 if the price falls below the moving average.
Explanation of Illustrations:
Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.
