The GBP/USD currency pair did not trade on Wednesday because the entire forex market was closed. When looking at the weekly timeframe for the British pound, we see a technical pattern that closely resembles that of the euro. Both have experienced a 16-year decline, a drop during 2021–2022, and a similar correction expected in 2023–2024. The main differences between the two lie in the intensity of their price movements, which reflect the varying strengths of the euro and the pound. However, the overall trend is determined by the strength of the US dollar. As the US dollar has been rising for 16 years, it is reasonable to conclude that it is the dollar's strength driving the market, rather than a decline in the euro or the pound.
It's important to note that over the past 16 years, the euro has depreciated by a factor of 1.55, while the British pound has fallen by a factor of 1.69. The pound has depreciated at a faster rate, largely due to the significant economic challenges faced by the UK since 2016. However, in the last two years, the pound has recovered more strongly than the euro, reaching the 76.4% Fibonacci retracement level. Despite this recovery, the overall movement is still classified as a correction. Therefore, the same conclusions drawn for the euro can also be applied to the pound.
We have established that the dollar primarily drives these movements, and the US's fundamental conditions continue to dominate. The fundamental factors in Europe and Britain merely adjust the movements of the currency pairs: the pound tends to decline slightly more sharply but has also experienced a stronger correction over the past two years. As a result, another clear conclusion can be drawn: the decline of the British pound is likely to continue.
If the global downtrend has not yet ended, the pound could potentially fall below parity, which would signify a complete collapse. Looking ahead to 2025, setting more realistic targets places the 1.18 level as the most logical option. We have been discussing this level since the beginning of 2024. Additionally, it's important to note that ending a global trend that has lasted 16 years requires very compelling reasons. A currency that has been declining for such a long time cannot suddenly begin to rise without significant catalysts. Since no such reasons are currently apparent and there are no technical indications of a trend reversal, the outlook remains consistent: further decline for the British pound is anticipated.
Since we are analyzing the weekly timeframe, it may take several months or even up to half a year for the price to move toward the 1.18 level. If we are at the beginning of a new downtrend, the decline could occur relatively quickly. However, we do not expect the British currency to return to the 1.34 level or rise to 1.42. There are simply no grounds for such movements, given the current state of the British economy and its political challenges.
The average volatility of the GBP/USD pair over the last five trading days is 120 pips, which is considered high. On Thursday, December 26, we expect movements to be limited within the range of 1.2412 to 1.2652. The higher linear regression channel is trending downward, indicating a bearish trend. Although the CCI indicator has recently entered the oversold area again, the pound is likely to continue its downward trajectory, as we have mentioned several times before. It's important to note that any oversold condition during a downtrend typically signals just a correction. Additionally, the bullish divergence observed on this indicator suggests the potential for a correction.
Key Support Levels:
Key Resistance Levels:
- R1 – 1.2573
- R2 – 1.2695
- R3 – 1.2817
Trading Recommendations:
The GBP/USD currency pair is maintaining a bearish trend while undergoing some corrections. We do not recommend taking long positions at this time, as we believe that the factors supporting the British currency have already been fully priced in by the market. For traders who focus solely on technical setups, long positions could be considered if the price rises above the moving average line, with a target of 1.2817. However, short positions are currently much more relevant, with targets set at 1.2451 and 1.2394.
Explanation of Illustrations:
Linear Regression Channels help determine the current trend. If both channels are aligned, it indicates a strong trend.
Moving Average Line (settings: 20,0, smoothed) defines the short-term trend and guides the trading direction.
Murray Levels act as target levels for movements and corrections.
Volatility Levels (red lines) represent the likely price range for the pair over the next 24 hours based on current volatility readings.
CCI Indicator: If it enters the oversold region (below -250) or overbought region (above +250), it signals an impending trend reversal in the opposite direction.
