The GBP/USD currency pair showed a significant rise on Friday, which lacked any fundamental justification. The only report in the UK—the retail sales data—once again disappointed, coming in weaker than forecasts. However, this did not prevent the British pound from rising once again in a manner and at a time when it logically should not have. One could speculate about the formation of a "Double Bottom" pattern (which also appears on the EUR/USD pair). However, we remind traders that such patterns rarely perform as expected. Market makers often exploit them to trigger the Stop Loss orders of retail traders. In other words, this pattern is visible to every market participant, leading many traders to open long positions in hopes of profiting from the setup. Naturally, these traders place their Stop Losses below the Double Bottom. Therefore, big players, with their significant volumes, can quickly "sweep" these Stop Losses.
Of course, the above is just speculation. We cannot predict with certainty how large players will act. However, manipulation in the forex market is commonplace. We tend not to trust obvious patterns and signals because they are apparent to everyone. This week, unfortunately, trading decisions will need to rely solely on technical factors. The GDP report for Q3 (third estimate) will be published in the UK, while data on durable goods orders and unemployment claims are scheduled in the US. These are not critical reports, and there are simply too few to influence the pair's macroeconomic movements drastically.
In the 4-hour timeframe, the pair trades below the moving average, indicating a short-term downtrend. Despite the Double Bottom, the pair could continue to decline this week. If the price consolidates above the moving average, a rise in the British currency might be expected. But on what basis would this rise occur, given the lack of fundamental and macroeconomic drivers? The downtrend remains intact on higher timeframes, both on the daily and weekly charts. Therefore, we still expect the British currency to decline long-term. Naturally, the fundamental background could change, forcing a reassessment of the primary outlook. However, there are no reasons to revise the current plan.
The average volatility of the GBP/USD pair over the last five trading days is 123 pips, which is considered "high" for this pair. Therefore, on Monday, December 23, we expect the pair to trade within the range of 1.2441–1.2687. The higher linear regression channel is directed downward, indicating a prevailing downtrend. The CCI indicator recently re-entered the oversold zone, but as we have repeatedly warned, the pound ultimately seeks to resume its downward trend. Any oversold condition in a downtrend typically signals only a correction. The bullish divergence on the CCI also hints at a potential correction.
Nearest Support Levels:
- S1 – 1.2451
Nearest Resistance Levels:
- R1 – 1.2573
- R2 – 1.2695
- R3 – 1.2817
Trading Recommendations:
The GBP/USD currency pair remains in a downtrend but continues to correct. Long positions are still not considered viable, as we believe the market has already priced in all growth factors for the British currency multiple times. For traders employing "pure" technical analysis, long positions may be taken with a target of 1.2817, provided the price consolidates above the moving average line. However, short positions are much more relevant now, with targets at 1.2451 and 1.2441.
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.
The material has been provided by InstaForex Company - www.instaforex.com
