The GBP/USD Currency Pair Resumed Its Bearish Trend
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On Thursday, the GBP/USD currency pair resumed its downward trend and once more consolidated under the moving average line. We specifically covered this in earlier articles. Although the pound does not yet have the basis for significant growth, it may occasionally adjust fairly sharply. This causes consolidation above the moving average, which some people may misinterpret as a change in trend. Remember that the UK released a package of rather optimistic, but not noteworthy, statistics this week. The British pound experienced a considerable increase in February across all three business activity indicators. This growth is what caused the price to consolidate above the moving average. The very following day, however, traders forgot about business operations and focused on the technical picture and overall fundamental background, which indicated that the pound should decrease rather than increase. Recall that, following a long and strong downward trend, the value of the British pound has also increased significantly in recent months. It was therefore required to make a technical correction upward in global terms. The question of why the pound will keep growing occurred after the pair had adjusted (like the euro currency) by 50%. Since there was no response, at least now a downward correction is required before it can be observed. Now, a lot will depend on the BA and the Fed's monetary policy, which in turn will depend on the dynamics of inflation in 2023.
On the 24-hour TF, however, the movement over the past few months appears to have been more of a flat than a trend. The pair alternately determines the upper border of the channel and then the lower one as they move between 1.1900 and 1.2440. As a result, the long-term flat rate for the pound is already official. Although we still anticipate its conclusion and the restart of the downward movement, we first need to clear the level of 1.1900. The pound is generally in an unfortunate position and does not appear to want to keep declining. Perhaps the UK's high inflation rate is to blame, which leads market players to anticipate more and more rate increases from the Bank of England. It is still the case.
Can BA keep up with inflation?
As we've already mentioned, inflation is still the most crucial indicator for the foreign exchange market, and it often has a unique significance in the UK. This is so because despite raising the rate to 4%, the Bank of England was unable to significantly limit the rate of increase in consumer prices. The rate of inflation remained above 10%. However, some economists and government representatives are already concerned about a new global acceleration of inflation in 2023. It should be kept in mind that oil and gas, whose prices have dropped dramatically over the past six months, played a big influence in the collapse of this indicator. Thus, if energy costs start to increase once more, this might very well catalyze a new rise in inflation. Moreover, the rate has already been increased by the Bank of England ten times. Theoretically, they could raise it to at least 10% and ruin its economy, but it seems improbable that they would do so. It turns out that the crucial concern right now is how far the regulator can tighten monetary policy, if at all. And the pound will change in 2023 based on the response to this query.
In the UK, wages are another major issue because they keep going up as a result of a labor shortage in many sectors. We previously reported that many migrant workers decided to leave the UK after Brexit because the process of acquiring work documents was difficult. There is a labor shortage in Britain as a result of their covert work in other European nations. Because of the shortage, workers now have a choice in which company they want to work for. Therefore, businesses are compelled to provide more enticing terms to recruit an employee for themselves. All of this raises salaries, which raises inflation. According to Catherine Mann's statement from yesterday, some companies will raise salaries by 6-7% only to keep employees. She also pointed out that even for the following year, inflation estimates are significantly higher than the desired 2%. Hence, Britain may have been caught in an inflation trap for a long time, and getting out of it will be very challenging. If the Bank of England is unable to consistently tighten monetary policy, the pound may sooner or later start to weaken again globally. We anticipate a decline in the following days to a level of 1.1900, which is just below the recent local minimum on the 4-hour TF.
Over the previous five trading days, the GBP/USD pair has experienced an average volatility of 104 points. This value is "average" for the dollar/pound exchange rate. As a result, on Friday, February 24, we anticipate movement that is limited by the levels of 1.1890 and 1.2098. The upward reversal of the Heiken Ashi indicator will signal a new round of upward correction.
Nearest levels of support
S1 – 1.1963
S2 – 1.1902
S3 – 1.1841
Nearest levels of resistance
R1 – 1.2024
R2 – 1.2085
R3 – 1.2146
Trade Suggestions:
In the 4-hour timeframe, the GBP/USD pair once again stabilized under the moving average. So, until the Heiken Ashi indication turns up, it is still possible to hold short positions with targets of 1.1902 and 1.1890. If you consolidate above the moving average, you can start trading long with targets of 1.2098 and 1.2146.
Explanations for the illustrations:
Determine the present trend with the use of linear regression channels. The trend is now strong if they are both moving in the same direction.
The short-term trend and the direction in which to trade right now are determined by the moving average line (settings 20.0, smoothed).
Murray levels serve as the starting point for adjustments and movements.
Based on current volatility indicators, volatility levels (red lines) represent the expected price channel in which the pair will trade the following day.
A trend reversal in the opposite direction is imminent when the CCI indicator crosses into the overbought (above +250) or oversold (below -250) zones.
Relevance up to 01:00 2023-02-25 UTC+1 This information is provided to retail and professional clients as part of marketing communication. It does not contain and should not be construed as containing investment advice or investment recommendation or an offer or solicitation to engage in any transaction or strategy in financial instruments. Past performance is not a guarantee or prediction of future performance. Instant Trading EU Ltd. makes no representation and assumes no liability as to the accuracy or completeness of the information provided, or any loss arising from any investment based on analysis, forecast or other information provided by an employee of the Company or otherwise. Full disclaimer is available here.
