The GBP/USD currency pair was actively growing on Wednesday. This is not at all surprising against the background of the 600-point drop that it demonstrated in the days leading up to Wednesday. The pair simply corrected, but at the same time could not even get to the moving average line. What happened on Thursday? On Thursday, the Bank of England announced the results of its meeting, and the pound, like the euro, rushed up with some delay. The movement was very strong, but how much can the British currency grow in such dynamics? The growth was abnormal. That is why we said that we should sum up the results of two meetings at once no less than a day after the completion of both. We believe that the market has once again shown its lack of cohesion and serious disagreements in situations where, it would seem, everything is unambiguous. But the results of the meetings of both banks were unambiguous. The Fed raised the rate by 0.75%, the Bank of England - by 0.25%, but for the fifth time in a row. Thus, according to the logic of things, the dollar should have grown first, and then the pound sterling. But in practice, the pair showed rather strange movements (the pound rose very much, and the dollar did not grow at all), and it is very difficult to say exactly which currency grew after the first and second meetings.
Thus, the technical picture has not changed after the two most important events of the month. The pound sterling is not far from its 2-year lows, and traders seem to have worked out the efforts of the Bank of England, which raised the rate for the fifth time in a row, but once again – how long will the pound continue to grow? The Bank of England, of course, is not the ECB, which continues to pull the rubber and crumples every time it comes to tightening monetary policy, but both European currencies have shown their weakness in recent months. From our point of view, the geopolitical factor is still working, which, combined with the fundamental factor, can negatively affect European currencies for a long time. A couple of weeks ago, we assumed that the market had already worked out all future Fed rate hikes. But now there are big doubts about this.
The results of the Bank of England meeting can be called "hawkish" in their way.
Well, the decision of the Bank of England to raise the rate by 0.25% did not cause any surprise to the market. However, it is worth noting the fact that only six of the nine members supported a 0.25% increase. Three voted for an increase of 0.5% at once. This fact tells us that the outcome of the meeting could have been much more aggressive. It also suggests that almost half of the monetary committee supports a stronger tightening of monetary policy than now. And this means that at the next meeting, the British regulator may raise the key rate again. And this time by 0.5%. Let's remember about the main catalyst for tightening monetary policy - inflation. If in the States the consumer price index will now be forced to slow down, then in the UK the regulator itself openly declares that it expects higher price growth. Consequently, these expectations have a certain ground under their feet. If so, it will take more than one tightening of monetary policy for inflation to start moving in the direction of 2%, and not in the direction of 15%. The final communique also said that the British economy is likely to slow down by 0.3% in the second quarter, which is not so much. For example, the US economy has already lost 1.5% in the first. Therefore, so far it can be concluded that the British Central Bank has room for maneuver.
But what profit can the pound make for itself from all this? Theoretically, it can. In practice, we are inclined to believe that it will continue to fall in the medium term, since the BA rates will still be lower than the Fed rates, and the geopolitical factor remains frankly not in favor of the British pound. The technical picture on the long-term TF (24-hour) so far also clearly speaks in favor of a further fall in the pound/dollar pair.
The average volatility of the GBP/USD pair over the last 5 trading days is 254 points. For the pound/dollar pair, this value is "very high". On Friday, June 17, thus, we expect movement inside the channel, limited by the levels of 1.2140 and 1.2647. The reversal of the Heiken Ashi indicator downwards signals a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.2329
S2 – 1.2207
S3 – 1.2085
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2573
R3 – 1.2695
Trading recommendations:
The GBP/USD pair has started a new round of upward correction in the 4-hour timeframe. Thus, at this time, you should stay in buy orders (if you opened them) with targets of 1.2451 and 1.2573 until the Heiken Ashi indicator turns down. It will be possible to consider short positions again if the price is fixed below the moving average with a target of 1.2140.
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 now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
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.
