On Friday, the GBP/USD currency pair moved much more steadily than it did on Thursday when it dropped by 250 points. Nevertheless, the downward trend persisted, and the price stayed below the moving average line, which is already a remarkable accomplishment given that the pair struggled to adjust for many weeks. A specific technical signal is available for purchase for the first time in a very long time. Remember that the pound has increased by 2,000 points over the past 2.5 months and that we have been anticipating a downward correction for the past three weeks. Such growth is unreasonable and illogical. At least last week, traders had the fortitude to reason through the fundamental background roughly.
Remember that the Bank of England increased the rate by 0.5%, slowing the tightening of monetary policy. But if the Fed did it at a 4% rate, the BA would do it at a 3% level. If the Fed has been waiting for five successive drops in inflation, the BA hasn't even been waiting for the first one and has already started slowing the growth rate. Therefore, we think another increase of 0.75% could maintain the pound's upward trend; however, an increase of 0.5% can be viewed as "dovish," even though it is not.
Whatever the central banks' last-week decisions were, the pound increased by 2,000 points in just 2.5 months. However, this justifies the current expectation of a 700–800 point decline. Furthermore, given that the growth factors for the pound have not increased recently, it is completely unclear how it will be able to expand over the long term. All of this operates like a "pendulum" without outside forces. The pendulum starts swinging weaker and weaker after you let go of it. Likewise, the pound. It has been moving downward for two years but has since increased by 2000 points. Logically, there should be a drop of 800-1000 points right now, followed by a 500-point rise. A period of consolidation will follow.
This week, nothing will impact the market's mood.
This week, there will be one more significant news in the UK than in the EU. The third quarter GDP report will be released in the final assessment on Thursday. The 0.2% q/q decline that traders are anticipating is not too bad. A response is unlikely to occur if there is no significant departure from the forecast.
Additionally, this week in the US, there will be one more significant report than in the EU. Even then, it would be a great stretch. It is worthwhile to focus solely on Friday's reports on long-term use orders and personal income and expenditures of the American population. These reports are always labeled "important," but the response is uncommon. Therefore, no significant events will occur in the United States this week. There will only be supplemental reports. Therefore, nothing should stop traders from initiating the new "swing" of the pendulum that we discussed earlier. We don't see any way the pound can start to increase again this week. If this occurs, the British pound price will increase once more inexplicably. It makes no sense to attempt to predict it in this situation because there are no foundations for growth. Although the reverse consolidation above the moving average line will once more signal that options for opening long positions should be considered, we will continue to wait for a sharp decline.
Over the previous five trading days, the GBP/USD pair has averaged 154 points of volatility. This value is "high" for the dollar/pound exchange rate. As a result, on Monday, December 19, we anticipate movement constrained by the levels of 1.1979 and 1.2289 to remain inside the channel. A round of upward correction will begin if the Heiken Ashi indicator reverses direction upward.
Nearest levels of support
S1 – 1.2146
S2 – 1.2085
Nearest levels of resistance
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading Suggestions:
In the 4-hour timeframe, the GBP/USD pair began moving downward. Therefore, until the Heiken Ashi indicator appears, you should maintain sell orders with targets of 1.2085 and 1.1979. When the moving average is fixed above, buy orders should be placed with targets of 1.2329 and 1.2390.
Explanations for the illustrations:
Determine the present trend with the aid of linear regression channels. The trend is currently strong if they both move in the same direction.
Moving average line (settings 20.0, smoothed): This indicator identifies the current short-term trend and the trading direction.
Murray levels serve as the starting point for adjustments and movements.
Based on current volatility indicators, volatility levels (red lines) represent the likely 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 2022-12-20 UTC+1 Company does not offer investment advice and the analysis performed does not guarantee results. The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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