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The downward movement of the pound, which can now be labeled as a firm fall, is solely linked to the euro. The euro's own decline is triggered by weak producer price data, as eurozone PPI was down -10.6% yoy in December. Not only does this show that eurozone inflation is falling further, but it also points to a growing risk of the European economy sliding into deflation, coupled with its gradual entry into recession. As a result, it seems that the European Central Bank will not only be the first key central bank to start lowering interest rates but will do so very quickly. Therefore, the interest rate disparity, which is already in favor of the dollar, will only increase.
Today, the dollar will likely rise, once again due to European economic data. This time, the focus is on retail sales, which may disappoint investors as the pace of their decline is expected to accelerate from -1.1% to -1.3%. A negative impact on the euro will, in turn, affect the pound.
GBP/USD has finally left the seven-week sideways channel between 1.2600 and 1.2800 by breaking below its lower boundary. As a result, there was a surge in the volume of short positions, allowing speculators to weaken the exchange rate by approximately 80 pips. However, it's important to note that the total depreciation of the pound's value since last Friday is around 250 pips.
The RSI has touched the oversold zone on the 4-hour chart, indicating signs of a huge number of short positions in the market.
On the same time frame, the Alligator's MAs are headed downwards.
Such a rapid change over a short period indicates an excessive number of short positions in the market, which in the theory of technical analysis could lead to a pullback. However, in case the price settles below the 1.2500 level, the downtrend cycle may resume. In this scenario, there may be a risk of a shift in trading interests in the medium term.
In terms of complex indicator analysis, a pullback is likely in the short term. Indicators also signal a downward cycle in the intraday period.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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