The GBP/USD currency pair also traded in both directions on Monday, as if the market deliberately aimed to confuse traders. Last week, the British pound gained strength despite very few reasons for such a move. Some U.S. reports were weaker than expected, and Andrew Bailey announced four rate cuts for next year. However, those rate cuts represent a dovish stance, which should have triggered a decline in the pound. At the same time, Jerome Powell reiterated that the Federal Reserve is not in a hurry, emphasizing that the economy is in excellent shape, giving the Fed the time it needs. Friday's Nonfarm Payrolls report supported Powell's statements. Thus, we believe the dollar had more reasons to appreciate last week than the pound.
The reasons for the pound's strengthening are similar to those of the euro: technical factors. The pair had declined for two consecutive months, making at least a minor correction necessary. Understanding this leads to the same assumption as with the euro: the decline could resume this week. Of course, no one can predict the outcome of Wednesday's inflation report, the week's key event (apart from the European Central Bank meeting). If inflation shows no growth or decline, it could justify further dollar selling. However, regardless of how strong the correction becomes, it remains a correction.
It's worth noting (clearly visible on the weekly timeframe) that the last corrective wave reached 76.4%, with the price correcting over two years. At the same time, this observation pertains to a long-term perspective; even if the growth over the past two years represents the start of a new multi-year trend (for which there is currently no basis), a downward correction is now required to return the pound to at least the 1.18 level. For the 16-year downtrend to be considered over, the British currency would need to rise above 1.4230. What reasons are there for such a strong rise in the pound after it has already gained over 2,000 pips?
The conclusions remain the same as before. The pound may continue to rise for a while, and the market may keep ignoring the Bank of England's monetary policy easing, which will either begin or accelerate regardless. Similarly, the market may continue to overlook its misjudgment regarding easing U.S. monetary policy. In addition, large players may irrationally continue pushing the pound higher in the long term without any logic. However, none of this changes the bigger picture. Any growth in the pound is a correction. Any strong growth is an illogical movement that cannot be predicted. Such movements can only be explained retrospectively by emphasizing supportive factors while ignoring opposing ones.
The average volatility of the GBP/USD pair over the last five trading days is 78 pips, which is considered "moderate" for this pair. On Tuesday, December 10, we expect the pair to move within a range defined by the levels 1.2684 to 1.2840. The higher linear regression channel is pointing downward, signaling a bearish trend. The CCI indicator has formed multiple bullish divergences and has entered the oversold zone several times. While a correction has begun, its strength is difficult to predict.
Nearest Support Levels:
- S1: 1.2695
- S2: 1.2573
- S3: 1.2451
Nearest Resistance Levels:
- R1: 1.2817
- R2: 1.2939
- R3: 1.3062
Trading Recommendations:
The GBP/USD pair maintains a bearish trend but continues to correct upward. We are not considering long positions at this time, as we believe that all growth factors for the British currency have already been priced in by the market several times. For those trading based on "pure" technicals, long positions may be possible with targets at 1.2817 and 1.2840 if the price moves above the moving average line. Short positions, however, are currently more relevant, with a target of 1.2573, provided the price consolidates back below the moving average.
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.
The material has been provided by InstaForex Company - www.instaforex.comRobotFX
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