The GBP/USD currency pair also declined on Friday and Monday. After the price twice failed to deal with the Murray level of "+1/8"-1.2268, a powerful drop in quotes began, and the pair is already below the moving average line. Thus, the pound has adjusted by 500 points in total over the past month, but now it has every chance of resuming a long-term downward trend. Traders could consider all future Fed rate hikes at the current rate. We have already voiced this idea several times, but no one in the world can say whether this is true or not. The fact remains that if the market has already considered all the rate increases, the pound will strengthen. But if the market had already considered all these increases, the pound could have strengthened much more quickly. If we discussed the end of a long-term downward trend, the pound would show a stronger rebound from its 2-year lows. Therefore, before proceeding to the technical component, it is necessary to form a fundamental hypothesis, the confirmation of which should be sought with the help of "technology."
And what about the "foundation"? It's just that it hasn't changed. On the contrary, the pound has only worsened over the past week. Earlier, the Bank of England actively raised the rate, which gave the pound a certain chance of growth against the dollar. Then Andrew Bailey openly declares that the British economy will face a serious recession. And if a recession starts, the regulator may stop raising the key rate. Inflation in the UK has not even started to slow down yet. It will turn out to be a situation in which the Bank of England raised the rate six times, did not achieve a single reduction in inflation, and reached the beginning of a recession. Naturally, now traders will think ten times before buying the pound. COT reports showed a sharp increase in the number of long positions last week, but the overall mood remains "strongly bearish." We believe that the pound will also resume falling in the long term.
Inflation could support the pound but is likely to bury it
This week's most important report will be the British inflation report for July, which will be announced on Wednesday. According to forecasts, the consumer price index will rise to 9.8-9.9%. And only this one moment can be viewed from different angles and angles. On the one hand, inflation continues to rise and will not pay attention to all the efforts of the Bank of England. On the other hand, its maximum value is still far away since the Bank of England predicted a peak value of 13%. On the third hand, Andrew Bailey announced a severe recession, which may force BA to stop raising the rate.
Conversely, if the BA stops tightening monetary policy, inflation may jump to 15%. In general, no matter how you look at it, everything is bad for the pound. Earlier, a new increase in inflation would have meant that the Bank of England could tighten its monetary policy; now, this is not a fact. The pound has squeezed out everything it could over the past month, but on what basis should it continue to grow?
All other reports from the UK are unlikely to interest traders. The unemployment rate, average wages, and retail sales can provoke a market reaction by 30–50 points, but no more. We are also interested in the fundamental global background, which remains on the dollar's side. There will be practically no important statistics in the States this week. One more or less significant report on retail sales and, in fact, everything. No, there will be other data, but we try to draw traders' attention to those data that can provoke a strong market reaction or affect the fundamental global background. There won't be any this week. And, from a technical point of view, the pound has already fallen. On the 24-hour TF, it failed to gain a foothold inside the Ichimoku cloud. The correction is only 500 points, which is minuscule for a global scale. Consolidation below the level of 1.2025 (the Kijun-sen line on the 24-hour TF) will open the way for the pair to update 2-year lows.
The average volatility of the GBP/USD pair over the last five trading days is 112 points. For the pound/dollar pair, this value is "high." On Tuesday, August 16, thus, we expect movement inside the channel, limited by the levels of 1.1974 and 1.2197. The reversal of the Heiken Ashi indicator downwards signals an upward correction.
Nearest support levels:
S1 – 1.2085
S2 – 1.2024
S3 – 1.1963
Nearest resistance levels:
R1 – 1.2146
R2 – 1.2207
R3 – 1.2268
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair consolidated below the moving average and began a new downward movement. Therefore, at the moment, you should stay in sell orders with targets of 1.2024 and 1.1974 until the Heiken Ashi indicator turns up. Buy orders should be opened when fixing above the moving average line with targets of 1.2197 and 1.2268.
Explanations of the illustrations:
Linear regression channels – help determine the current trend. If both are directed in the same direction, then the trend is strong.
Moving average line (settings 20.0, smoothed) – determines the short-term trend and the direction in which trading should be conducted now.
Murray levels are target levels for movements and corrections.
Volatility levels (red lines) are the likely price channel in which the pair will spend the next day, based on current volatility indicators.
The CCI indicator – its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
