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On Tuesday, the GBP/USD pair experienced another sharp decline. The price had been trading in a flat, horizontal channel for several weeks. However, we warned that this situation wouldn't last forever, as the British currency had no justification for growth. Yesterday, the UK released three noteworthy reports, two of which could be considered positive. The number of jobless claims was lower than expected, and wages in the UK grew more than forecast, suggesting higher inflation and a slower pace of rate cuts by the Bank of England. Despite this, the data had no significant impact on market participants. The unemployment rate unexpectedly rose from 4% to 4.3% in September, enough to trigger a sharp drop in the pound. We believe the British currency was bound to decline even without these reports, but such reports made the sell-off easier and more pronounced.
On Tuesday, several trading signals were formed in the 5-minute time frame. First, the pair rebounded from the 1.2791–1.2798 area, then broke through this range and consolidated below the 1.2748 level. As a result, novice traders could initially go long on the pound and then switch to short positions. Considering the strong downtrend, it likely wasn't advisable to consider buy signals. Regardless, none of the trades resulted in losses, and short positions generated good profits due to high volatility.
The GBP/USD pair continues to lean toward a further decline in the hourly time frame. In recent weeks, we observed a semblance of a flat between the 1.2860 and 1.3043 levels, but this range broke on Tuesday. We fully support the pound's decline in the medium term, as we believe this is the only logical scenario. The pound may attempt another correction in the short term, but it will need support for this to happen.
On Wednesday, novice traders can expect the downward movement to continue if the price remains below the 1.2748 level. Today, the pair's movement will largely depend on the U.S. inflation report.
Key Levels for the 5-Minute Chart: 1.2665–1.2684, 1.2748, 1.2791–1.2798, 1.2848–1.2860, 1.2913, 1.2980–1.2993, 1.3043, 1.3102–1.3107, 1.3145–1.3167. On Wednesday, the UK event calendar is empty, but a critical inflation report will be released in the U.S., which could trigger a strong market reaction.
Support and Resistance Levels: Levels that serve as targets for opening buys or sells. Take Profit levels can be placed around these areas.
Red Lines: Channels or trend lines that indicate the current trend and the preferred trading direction.
MACD Indicator (14,22,3): Histogram and signal line—an auxiliary indicator that can also be used as a source of signals.
Major speeches and reports (always found in the news calendar) can significantly impact currency pair movements. Therefore, it's advised to trade cautiously or exit the market during their release to avoid sharp price reversals against prior movements.
Beginners trading on the forex market should remember that not every trade will be profitable. A clear strategy and money management are the keys to success in long-term trading.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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