GBP/USD Overview. September 26. Is It Time for Donald Trump to Introduce New Tariffs?

[Redator]

The GBP/USD currency pair continued its downward movement on Thursday, which is already starting to look at least somewhat unusual. Let's remember: explaining any move after the fact is easy if you want to. We try to avoid that kind of "analysis," where moves are merely explained after they happen, rather than predicted and properly analyzed. What's the point of telling people after a move has occurred why it happened?

The pound sterling has been falling for about a week, losing around 300 pips from its latest high. That's quite a lot, but were there solid reasons for such a drop? Technically, yes. This is one of those cases where the market interpreted the information as it saw fit, rather than as logic or common sense might suggest.

Recall that it all started last week after the Federal Reserve and Bank of England meetings. Despite the Fed confirming a "moderately dovish" path for the next six months, and the BoE, on the contrary, taking a "moderately wait-and-see" stance, the market somehow interpreted the results in favor of... the US dollar. The next day, news broke of yet another budget crisis in the UK, but it's hard to see what's so tragic about that. The United States has been living with a deficit budget, month after month, for decades—and that hasn't stopped the US dollar from rising for 16–17 years straight. If anybody has forgotten, in 2007, the pound was worth $2.12. Formally, then, there was a reason to sell the pound, but it wasn't any more significant than "Reeves's tears" a few months ago.

This week, both the Fed Chair and the BoE Governor have already spoken, and the market once again interpreted the news unfavorably for the pound. According to traders and analysts, Jerome Powell disappointed them by not promising to cut rates at every meeting or do it rapidly. The fact that Powell has never even hinted at such a scenario is of no interest to anyone. Only three officials within the FOMC support aggressive easing, and they are all, to varying degrees, Trump appointees. Trump appointed Christopher Waller and Michelle Bowman, and Stephen Miran replaced the outgoing Adriana Kugler with support from the same president. All three believe the labor market is more important than inflation and therefore the key rate should be cut, as soon as possible.

To top it all off, the BoE Governor also disappointed traders. Market participants expected Bailey to say that rate cuts would be impossible anytime soon due to high inflation, but instead, he actually discussed slowing inflation and labor market weakness, hinting at another easing before the year's end. It's hard to see where Bailey finds this "slowing inflation," but perhaps the BoE has its own charts showing the consumer price index going strictly to plan.

The average volatility for GBP/USD over the past 5 trading days is 90 pips. For the pound/dollar pair, this is a "normal" figure. On Friday, September 26, therefore, we expect to see movement within the range bounded by 1.3257 and 1.3437. The longer-term linear regression channel is pointing upward, which indicates a definite uptrend. The CCI indicator may once again enter the oversold zone, which could signal another potential upward reversal.

Nearest Support Levels:

S1 – 1.3306

S2 – 1.3245

S3 – 1.3184

Nearest Resistance Levels:

R1 – 1.3367

R2 – 1.3428

R3 – 1.3489

Trading Recommendations:

The GBP/USD currency pair is once again undergoing a correction, but its long-term outlook remains unchanged. Trump's policies will continue to put pressure on the dollar, so we do not expect any meaningful growth from the US currency. Thus, buy positions with targets at 1.3672 and 1.3733 remain more relevant if the price is above the moving average. If the price is below the moving average, small shorts with targets at 1.3306 and 1.3257 can be considered on purely technical grounds. From time to time, the US currency does show corrections (as it does now), but for a sustained uptrend, it needs clear signs that the global trade war is over or other truly global and positive factors.

Chart Elements Explained:

• Linear regression channels help determine the current trend. If both channels point in the same direction, the trend is strong.
• The moving average line (settings 20,0, smoothed) indicates the short-term trend and trade direction.
• Murray levels serve as target levels for moves and corrections.
• Volatility levels (red lines) are the likely price channel for the next day, based on current volatility readings.
• The CCI indicator: dips below -250 (oversold) or rises above +250 (overbought) mean a trend reversal may be near.

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