06.11.202403:17 Forex Analysis & Reviews: Overview of GBP/USD on November 6; "Fed Doves vs. BoE Doves"

The GBP/USD currency pair spent much of Tuesday in one place, barely moving in any particular direction. The market is clearly waiting; everyone knows what it's waiting for. We've already discussed the U.S. elections, so let's consider the upcoming central bank meetings. It's rare to encounter a situation where it's nearly impossible to predict a specific action from a central bank. The consensus expectation is for the Federal Reserve and the Bank of England to lower rates by 0.25%. However, these 0.25% cuts could differ significantly in their impact. Recall that the recent Nonfarm Payrolls report was dismal. While there are claims that the poor performance was "coincidental" due to October's natural disasters in the U.S., the data doesn't lie. Hardly any jobs were created, and the Fed could react well to this report.

We don't expect a 0.5% rate cut, but we believe Fed Chair Jerome Powell's tone could be more dovish than currently anticipated. A more dovish tone could spell trouble for the U.S. dollar. We believe that the market has already priced in, or nearly priced in, the entire Fed easing cycle, as the dollar began its decline two years ago when U.S. inflation started to slow. However, the dollar could see short-term declines if Powell hints at further easing or expresses concerns about the labor market.

As for the BoE, things are also quite complex. The BoE is likely to cut its rate by 0.25% but may also signal a readiness for more rapid easing in the future. Since the market likely hasn't fully priced in even a few stages of BoE easing, the pound would have plenty of reasons to continue its decline. We can see that the pound has struggled to correct itself in recent weeks. The primary global factor—the Fed's monetary policy—has already been priced in, allowing the dollar to continue rising. If we add BoE easing to the mix, the pound could fall further, and if the BoE reduces the rate at each meeting, the pound may decline rapidly.

It's worth noting that the BoE has only lowered the rate once so far. This suggests that the entire easing cycle lies ahead, which the market has not priced in advance, as the market's attention has been mainly on the Fed in 2024. Therefore, our view remains unchanged: we anticipate a much sharper decline for the British currency. We still believe it's overvalued and overbought.

A correction is still possible from a technical standpoint, as the CCI indicator has entered the oversold zone three times and has drawn several bullish divergences. However, this week's movements will be fundamentally driven, meaning that despite any technical divergences, the dollar could still show further gains.

The average volatility of the GBP/USD pair over the last five trading days is 99 pips, which is "average" for the pound/dollar pair. For Wednesday, November 6, we expect movement within a range defined by levels 1.2913 and 1.3111. The higher linear regression channel is directed upwards, signaling that the upward trend persists. The CCI indicator entered the oversold zone and formed several bullish divergences, hinting at an impending upward correction.

Nearest Support Levels:

• S1 – 1.3000
• S2 – 1.2970
• S3 – 1.2939

Nearest Resistance Levels:

• R1 – 1.3031
• R2 – 1.3062
• R3 – 1.3092

Trading Recommendations:

The GBP/USD pair maintains a downward trend. We're not considering long positions yet, as we believe the market has already priced in all the factors supporting the British currency multiple times. Long positions are feasible for "pure" technical trades with targets at 1.3062 and 1.3092 if the price holds above the moving average line. Short positions are much more relevant now, with targets at 1.2878 and 1.2848, but a confirmed move below the moving average is required. This week, mixed movements are possible due to strong fundamental influences.

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.