The GBP/USD currency pair continued to decline on Tuesday. Although this phrase might seem more applicable to the euro, it accurately reflects the situation for the pound. We mentioned yesterday that the pound sterling was nearing its two recent local lows and would likely break through them. This is precisely what happened on Tuesday. While the British currency continues to demonstrate remarkable resilience against the dollar, it is increasingly struggling to counter objective realities.
The key reasons for the pound's decline remain unchanged. Some experts believe the pound may avoid a sharp drop soon since the Bank of England hesitates to cut its key interest rate due to inflationary concerns. While this may hold some truth, it's worth recalling that the U.S. dollar began its decline two years before the Federal Reserve's first rate cut. Thus, the market might already preemptively offload the British currency without waiting for the BoE to act.
Furthermore, the British economy continues to raise significant concerns. In 2024, many experts described minimal GDP growth as a "recovery" or "optimistic result," even though the British economy has stagnated for two years. On Tuesday, it was revealed that the unemployment rate spiked to 4.3%, while average wages also grew by 4.3%, exceeding forecasts in both cases. While the latter report is generally positive for the pound, as higher wage growth could lead to increased consumer spending and inflationary pressures, the overall outlook remains grim. It's also worth noting that the BoE will continue cutting rates, and with a leader unlike Donald Trump, there's no fear of inflation spikes driven by external policies.
We believe the pound sterling will continue to weaken, albeit potentially at a slower pace than the euro. This trend is already evident in volatility measures. Although the pound is declining, its rate of descent is noticeably less steep than the euro's. However, we believe there is no prospect of a renewed two-year upward trend. Later this week, BoE Governor Andrew Bailey is scheduled to speak again, and the market will scrutinize his dovish remarks. Any comments about slowing inflation or continued rate cuts could lower the pound. Similarly, if Jerome Powell reiterates the possibility of a rate pause in December, it could further strengthen the U.S. dollar. A rising U.S. inflation to 2.6% or higher could also pressure the GBP/USD pair. While upward corrections are possible, our medium-term outlook remains bearish.
Over the past five trading days, GBP/USD has averaged 138 pips, a "high" level. On Wednesday, November 13, we anticipate movement within the range of 1.2592 to 1.2868. The higher linear regression channel has turned downward, signaling a bearish trend. The CCI indicator recently formed a bullish divergence, but the resulting retracement was short-lived, and the price has resumed its decline.
Nearest Support Levels:
S1: 1.2695
S2: 1.2634
S3: 1.2573
Nearest Resistance Levels:
R1: 1.2756
R2: 1.2817
R3: 1.2878
Trading Recommendations:
The GBP/USD pair maintains a bearish trend. Long positions remain unappealing, as we believe all bullish factors for the British currency have already been priced in several times. If trading purely based on technicals, long positions could target 1.3000 and 1.3062 if the price breaks above the moving average. However, short positions are far more relevant now, with targets at 1.2634 and 1.2592, provided the price stays 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.
