Analysis of Wednesday's Trades
1H Chart of GBP/USD
On Wednesday, the GBP/USD pair also experienced a sharp decline due to the sudden surge in hawkish sentiment within the Federal Reserve. As mentioned in previous analyses, the catalyst for the U.S. dollar's rise was not Jerome Powell's speech (though it may have contributed), nor the rate cut (inherently illogical), but rather the dot-plot chart. It became evident that the Fed's monetary committee members now anticipate much less policy easing in 2025 compared to previous dot-plot projections. This indicates Fed officials are no longer prepared to vote for such substantial rate cuts.
However, since September 2022, the market has been pricing in aggressive easing, with rates potentially falling as low as 2%. As we've emphasized throughout 2024, the market is now recalibrating the dollar's fair value, correcting for an unrealistic scenario it had already priced in.
Today's Bank of England meeting could allow the British pound to recover quickly. The BoE is unlikely to cut rates or adopt a dovish stance, which could provide some support for the currency.
5M Chart of GBP/USD
Four trading signals were generated in the 5-minute timeframe on Wednesday while the pair traded in a flat range. These highly accurate signals could have earned traders 10–15 pips. Unfortunately, entering the market became more challenging once the sharp decline began. If some novice traders managed to capitalize on the movement, that's a great result.
Trading Strategy for Thursday:
The GBP/USD pair appears to have completed its upward correction on the hourly timeframe, though there is no certainty or guarantee. We fully support a bearish outlook for the pound from a medium-term perspective, as we believe this is the most logical scenario. However, it is essential to remember that the pound exhibits strong resilience against the U.S. dollar. Therefore, while further declines are anticipated, traders should rely on technical signals.
On Thursday, the GBP/USD pair could exhibit high volatility again due to the BoE meeting, which may trigger movement in either direction.
On the 5-minute timeframe, consider the following levels for trading: 1.2387, 1.2445, 1.2502–1.2508, 1.2547, 1.2633, 1.2680–1.2685, 1.2723, 1.2791–1.2798, 1.2848–1.2860, 1.2913, 1.2980–1.2993.
The BoE meeting will likely be the focal point in the UK on Thursday. Another decline in the pound is possible, but we cannot entirely rule out the potential for growth if the BoE adopts a similarly hawkish tone.
Core Trading System Rules:
- Signal Strength: The shorter the time it takes for a signal to form (a rebound or breakout), the stronger the signal.
- False Signals: If two or more trades near a level result in false signals, subsequent signals from that level should be ignored.
- Flat Markets: In flat conditions, pairs may generate many false signals or none at all. It's better to stop trading at the first signs of a flat market.
- Trading Hours: Open trades between the start of the European session and the middle of the US session, then manually close all trades.
- MACD Signals: On the hourly timeframe, trade MACD signals only during periods of good volatility and a clear trend confirmed by trendlines or trend channels.
- Close Levels: If two levels are too close (5–20 pips apart), treat them as a support or resistance zone.
- Stop Loss: Set a Stop Loss to breakeven after the price moves 20 pips in the desired direction.
Key Chart Elements:
Support and Resistance Levels: These are target levels for opening or closing positions and can also serve as points for placing Take Profit orders.
Red Lines: Channels or trendlines indicating the current trend and the preferred direction for trading.
MACD Indicator (14,22,3): A histogram and signal line used as a supplementary source of trading signals.
Important Events and Reports: Found in the economic calendar, these can heavily influence price movements. Exercise caution or exit the market during their release to avoid sharp reversals.
Forex trading beginners should remember that not every trade will be profitable. Developing a clear strategy and practicing proper money management are essential for long-term trading success.
