On Monday, the GBP/USD currency pair did not attempt to begin a downward correction and remained above the moving average line. On Monday, the UK released comparatively significant GDP and industrial production reports, while the US and the EU still need to release significant data. Since the GDP was not reported quarterly, we cannot say that these reports are especially significant. As a result, the market's response could have been stronger. However, the EUR/USD pair has traded consistently throughout the day. Consequently, Monday went off without a hitch.
The technical picture has stayed the same for a very long time, but it doesn't stay the same either. The pair is still above the moving average, and we occasionally make slow attempts to move below it. On the 4-hour TF, the price is situated above every line of the Ichimoku indicator, and both linear regression channels point upwards. There are, therefore, no technical grounds to anticipate a decline in quotes at this time. However, the most active movements are still ahead because this week will be packed with many significant events and publications. It is important to note that the pair's volatility has significantly dropped over the past few weeks. The average volatility is now only 113 points, down from 150 to 200 points a month or two ago. This is odd considering that one would anticipate an increase in this indicator on the eve of three central bank meetings. But as you may recall, we have frequently stated that it is impossible to predict how the market will react to such significant events. Therefore, if the current week turns out to be less volatile than it initially appears, we won't be surprised.
The Bank of England rate and inflation may differ from one another.
The ratio of inflation to the Bank of England rate is the most significant issue we want to address in this article. American inflation has been declining for four consecutive months, European inflation has been declining for one month, and British inflation is still rising. There has not been a single decrease in the consumer price index despite the Bank of England raising its key rate eight times in a row. Thus, the British regulator found itself in a situation where there was no way out other than to raise the rate even further. However, the rate will also need to be increased, even more than by the Fed, which the British economy might need help handling.
Experts predict that BA will increase the rate by 0.5% this week, and for this reason alone, we have doubts about the British pound's ability to continue rising. Over the last two months, the pound sterling has increased by 2000 points, which is a significant increase. It increased primarily due to the need to counteract the global downturn, market expectations for a slowdown in Fed rate increases, and Liz Truss' resignation for rejecting tax proposals. But at this point, we're talking about a slowdown in the BA's growth rate. The slowdown, when there hasn't even been a single decline in inflation. BA won't reach the required inflation rate of 2%, or it will raise the rate for a very long time.
In both scenarios, the pound may respond by falling. The Fed has justification for shifting from an aggressive to a moderate stance. Not the Bank of England. Additionally, the regulator will face even more inquiries if inflation keeps increasing (the corresponding report is already due on Wednesday). Particularly in light of management's candid remarks about the impending two-year recession. What transpires? Since inflation is high and a recession is unavoidable, the Bank of England can no longer raise interest rates as quickly as it once could. The market may view all of these factors very differently. Still, after a 2000-point rise against such a fundamental backdrop, it is very challenging to envision the British pound strengthening further.
Over the previous five trading days, the GBP/USD pair has averaged 113 points of volatility. This value is "high" for the dollar/pound exchange rate. Thus, on Tuesday, December 13, we anticipate movement within the channel and are constrained by levels 1.2169 and 1.2390. The Heiken Ashi indicator's downward reversal again indicates that the pair is making another attempt to correct.
Nearest levels of support
S1 – 1.2146
S2 – 1.2085
S3 – 1.2024
Nearest levels of resistance
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading Suggestions:
In the 4-hour timeframe, the GBP/USD pair is attempting to resume its upward trend. Therefore, until the Heiken Ashi indicator turns down, you should maintain buy orders with targets of 1.2329 and 1.2390. With targets of 1.2146 and 1.2085, open sell orders should be fixed below the moving average.
Explanations of the illustrations:
Linear regression channels help determine the current trend. The trend is strong if both are directed in the same direction.
The 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.
