The GBP/USD currency pair traded steadily on Thursday, as there were no significant fundamental or macroeconomic developments that day. Additionally, Donald Trump did not make any noteworthy statements that could have caused market disturbances. Consequently, both the pound and the dollar experienced relatively calm trading in anticipation of the upcoming meetings of the Bank of England (BoE) and the Federal Reserve (Fed).

The Fed meeting is set for next week, concluding on Wednesday evening, while the BoE meeting will take place the following week. Although there is still time before these events, market attention is already shifting toward them. January's inflation reports have been released, bringing central banks to the forefront of focus. It's important to note that the movements of currency pairs remain significantly influenced by the monetary policies of the European Central Bank (ECB), the Fed, and the BoE. Since the cycles of monetary policy adjustments are not yet complete, the market cannot overlook their impact.

The main point for traders to remember is that the Fed may reduce the rate only once or twice in 2025, while the BoE is planning four rate cuts, with the possibility of more. This discrepancy arises from several factors. First, the BoE needs to keep an eye on the UK economy, which has experienced virtually no growth over the past two years. Second, the market has already anticipated the Fed's rate-cutting cycle to an extent that may be excessive, while the BoE's easing cycle has largely gone unnoticed. As a result, the dollar has strong grounds to continue appreciating, particularly since the BoE's easing cycle has just begun and has yet to be reflected in the market.

Additionally, the pound has been in a downtrend for the past four months, and it is also under a long-term downtrend that has lasted for 16 years. While all trends eventually come to an end, clear signals are necessary to confirm that a trend has reversed. The current fundamental and macroeconomic environment indicates that the dollar could continue to strengthen steadily in the medium term. The technical analysis shows no signals suggesting an end to the aforementioned trends. Therefore, we expect the pound sterling to weaken further.

On Friday, business activity indices for the services and manufacturing sectors will be released in both the UK and the US. For the US, these reports are of secondary importance, as the ISM indices hold much greater influence over the dollar than the S&P indices do. However, the European indices could impact both the euro and the pound, particularly if the actual data deviates significantly from forecasts. Minimal deviations are unlikely to generate any market reaction. We anticipate that the correction in GBP/USD could last for several weeks and may take a complex, multifaceted form. Additionally, the expected rate cuts from the BoE are not likely to significantly affect the pound's exchange rate, as the market has already priced them in.

The average volatility of the GBP/USD pair over the last five trading days is 100 pips, considered "medium" for the pound/dollar pair. On Friday, January 24, we expect the pair to trade within a range limited by the levels of 1.2252 and 1.2451. The higher linear regression channel is directed downward, signaling a bearish trend. The CCI indicator has entered the overbought area, suggesting the resumption of the downtrend.

Nearest Support Levels:

• S1 – 1.2329
• S2 – 1.2268
• S3 – 1.2207

Nearest Resistance Levels:

• R1 – 1.2390
• R2 – 1.2451
• R3 – 1.2512

Trading Recommendations:

The GBP/USD currency pair continues to display a bearish trend. We do not consider long positions, as we believe that all factors contributing to the pound's growth have already been reflected in the market multiple times, and there are currently no new catalysts in play. For those trading based on pure technical analysis, long positions might be considered if the price remains above the moving average line, with target levels set at 1.2390 and 1.2451. However, sell orders are more relevant, with target levels at 1.2207 and 1.2146. This strategy requires the price to break firmly below the moving average line.

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.