GBP/USD Overview. December 17. Clouds Gather Over the Bank of England

[Ben Graham]

The GBP/USD pair soared during the first half of Tuesday. It's safe to say we weren't surprised by the growth in the British currency. For several months, we have consistently pointed out that the dollar has no real strengths, so the British currency would rise, with or without a corresponding macroeconomic background. However, yesterday the market had compelling reasons to buy the GBP/USD pair. Let's analyze it.

First, note that this overview will not cover the Non-Farm Payrolls and unemployment reports, as they will be discussed in the EUR/USD article. In the morning, the UK released reports on unemployment, the number of unemployed, wages, and business activity indices in the services and manufacturing sectors. At first glance, the most important report in this package is the unemployment rate. However, that's not the case. The unemployment rate for October rose to 5.1%, which, of course, is a negative result. But the market was actually expecting this figure. Since it was anticipated, the market was prepared for it.

All other reports from the UK can be considered positive for the British pound. First, the number of new unemployed came in lower than expected. Not by much, but lower nonetheless. Second, the business activity indices exceeded forecasts, and consequently, the British economy might see some acceleration in the fourth quarter of 2025. Third, wages showed higher growth rates in October. Higher growth rates automatically suggest higher inflation growth, as British consumers gained the ability to spend more money.

Thus, yesterday's set of reports from the UK tells us one thing—the forecast for the Bank of England's key rate is ambiguous. The British central bank could have lowered the rate at their last meeting, guided by weak economic growth, rising unemployment, and falling inflation. However, after yesterday's reports, one could presume that November inflation might remain unchanged rather than fall to 3.5% as previously predicted. Economic growth in the fourth quarter could be above market expectations. Given the voting dynamics between the "doves" and "hawks" at the last BOE meeting, just one vote in either direction could significantly change the monetary policy outlook.

Currently, the market is confident in a new easing on Thursday. But it also understands that this will be the second consecutive "borderline decision" by the Monetary Committee. Currently, it is expected that five members of the BOE's board will vote for a rate cut, while four will vote to keep it unchanged. What if today's inflation report indicates stability or an increase in inflation? Would any of the "doves" shift to the "hawks"? If the decision to lower the rate is not made, then the British currency will have no reason to decline. There are already few.

The average volatility of the GBP/USD currency pair over the last five trading days, as of December 17, is 82 pips and is characterized as "average." On Wednesday, December 17, we expect the pair to trade within a range of 1.3328-1.3492. The upper channel of the linear regression is downward-sloping, but this is only due to a technical correction on higher timeframes. The CCI indicator has entered the oversold area 6 times in recent months and has formed several "bullish" divergences, consistently signaling a potential resumption of the upward trend. Last week, the indicator formed yet another "bullish" divergence, but the week ended with two entries into the overbought area and two "bearish" divergences. Conclusion: a correction within the upward trend.

Nearest Support Levels:

• S1 – 1.3367
• S2 – 1.3306
• S3 – 1.3245

Nearest Resistance Levels:

• R1 – 1.3428
• R2 – 1.3489
• R3 – 1.3550

Trading Recommendations:

The GBP/USD currency pair is attempting to resume the upward trend of 2025, and its long-term prospects have not changed. Donald Trump's policies will continue to exert pressure on the dollar; thus, we do not expect the US currency to grow. Therefore, long positions targeting 1.3489 and 1.3550 remain relevant in the near term when the price is above the moving average. If the price is below the moving average line, small short positions can be considered with targets at 1.3306 and 1.3245 on technical grounds. Occasionally, the US dollar shows corrections (on a global scale), but for any trend-based strengthening, it needs signs of a resolution to the trade war or other global positive factors.

Explanation of Illustrations:

• Linear Regression Channels help identify the current trend. If both are directed in one direction, it means the trend is strong right now.
• Moving Average Line (settings 20,0, smoothed) determines the short-term trend and the direction in which trading should currently be conducted.
• Murray Levels – target levels for movements and corrections.
• Volatility Levels (red lines) – the probable price channel in which the pair will operate in the coming days, based on current volatility indicators.
• CCI Indicator – its entry into the oversold area (below -250) or the overbought area (above +250) indicates that a trend reversal in the opposite direction is near.

The material has been provided by InstaForex Company - www.instaforex.com