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05.11.202403:34 Forex Analysis & Reviews: Overview of GBP/USD on November 5; The Pound Can't Seem to Do Anything

Exchange Rates 05.11.2024 analysis

The GBP/USD currency pair showed a somewhat unusual decline on Friday, followed by a more natural rise on Monday. However, this strengthening of the British currency may end here. The market restored Friday's fair rate, but further growth of the British pound will require new factors and reasons.

Over the past two years, the pound has mainly been on an upward trend. We believe this reflects the market's anticipation of future Federal Reserve rate cuts, which we consider a "global" factor. If that's the case, this has already been priced in, and the dollar has no further reasons to fall. While there may be speculation about what will happen to the U.S. economy under Donald Trump or Kamala Harris, we advise against such assumptions until the election results are announced. Trump is currently leading in the polls, which means little since the U.S. electoral system is too complex to draw conclusions based on polls alone. The outcome will depend on key states, where the margin for either candidate is often just a few hundred votes. Thus, both Trump and Harris remain in contention for the presidency.

This week's fundamentals include the Federal Reserve meeting, but the market no longer expects a 0.5% rate cut from the Fed, even after the disappointing Nonfarm Payrolls and ISM reports. We believe that if the U.S. labor market continues to deteriorate, the Fed will not accelerate the pace of easing. If that's the case, the dollar still has no real reason to decline.

Let's also remember that the Bank of England will hold its meeting this week, likely cutting the rate for the second time, probably by 0.25%. However, if the British pound has been rising for the last two years, has the market been pricing in advance for the BoE's easing? We believe not. Thus, we think Friday's labor and business activity data won't prevent the dollar from resuming its medium-term growth. The labor market will likely recover over time, as the Fed has set a clear course for easing. Note that rate changes don't have an immediate impact; time is needed for effects to show across various sectors of the economy. Therefore, there's no need for the Fed to panic and accelerate rate cuts.

Exchange Rates 05.11.2024 analysis

The average volatility of the GBP/USD pair over the past five trading days is 95 pips, which is "average" for the pair. On Tuesday, November 5, we expect movement within a range defined by levels 1.2854 and 1.3044. The higher linear regression channel is pointing upward, signaling the continuation of an upward trend. The CCI indicator has entered the oversold area and formed several bullish divergences, indicating a potential upward correction.

Nearest Support Levels:

  • S1 – 1.2939
  • S2 – 1.2909
  • S3 – 1.2878

Nearest Resistance Levels:

  • R1 – 1.2970
  • R2 – 1.3000
  • R3 – 1.3031

Trading Recommendations:

The GBP/USD pair maintains a downward trend. We still do not recommend long positions, as we believe all factors supporting the British currency have already been priced multiple times. If you're trading on "pure technicals," long positions are possible with targets at 1.3031 and 1.3044 if the price is above the moving average line. Short positions are currently much more relevant, with targets at 1.2878 and 1.2848, but they require a return below the moving average. This week, we could see mixed movements due to strong fundamental factors.

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.

*A análise de mercado aqui postada destina-se a aumentar o seu conhecimento, mas não dar instruções para fazer uma negociação.

Paolo Greco,
Analytical expert of InstaSpot
© 2007-2024
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