12.01.202604:32 Forex Analysis & Reviews: GBP/USD Pair. Week Preview. U.S. Inflation and the Contradictory Dollar

The GBP/USD currency pair lost only 50 pips last week and felt more confident than EUR/USD. Monday saved the British pound from a sharper decline. Recall that on Monday, the market was reacting to Trump's invasion of Venezuela and the capture of that country's president, as well as another "great" U.S. report — the manufacturing ISM. It was on that day that the "safe-haven" U.S. dollar lost about 100 pips, and volatility was highest. Thus, we still believe geopolitics will not support strengthening of the U.S. currency.

Last week, the U.S. released manufacturing ISM indices, ADP and JOLTS reports, Nonfarm Payrolls, and the unemployment rate. What conclusions can we draw? Manufacturing activity is falling, and services activity is rising. Job vacancies are shrinking, private-sector employment is falling, and new jobs are being created at insufficient levels to prevent unemployment from rising. Unemployment... does not decline. The last statement requires clarification.

The December unemployment report showed a 0.1% decline, but should this be taken as a trend reversal? We believe no. Unemployment in the U.S. has been rising for three years, so a one-off 0.1% drop is just noise or a correction. The dollar may have received temporary support, but the market understands that if jobs are created in insufficient volume, by what mechanism will unemployment continue to fall? Therefore, we treat last week's dollar strength as a banal technical correction.

On the daily timeframe, the price overcame the important Senkou Span B and Kijun-sen lines and, within the correction, returned to them. Thus, the Ichimoku indicator trend is bullish. As long as the pound remains above these lines, upside prospects remain high. No geopolitics will force the market to buy a dollar that is now itself a participant in military conflicts.

This week, there will be several important releases in the U.S. and the U.K., but we want traders to focus on one: December inflation. In November, the CPI unexpectedly slowed to 2.7%, which most experts immediately explained by "Black Friday." Therefore, if inflation continues to decline in December, that would be a death knell for the dollar, since the Fed would have no reason to keep the key rate at its current level given the poor state of the labor market. If inflation rises (which is much more likely), the dollar will not reap significant dividends because the market already does not expect the Fed to take any further dovish actions in the coming months.

We consider any fall in the pair to be, by default, a corrective move. This does not mean the dollar cannot rise in principle, but in the medium term, we still expect only its decline.

The average volatility of GBP/USD over the last 5 trading days is 77 pips. For the pound/dollar, this value is "average." On Monday, January 12, we therefore expect movement within the range of 1.3323 to 1.3477. The higher linear regression channel has turned upward, indicating trend recovery. The CCI indicator has entered oversold territory six times in recent months and has formed numerous bullish divergences, repeatedly signaling a continuation of the uptrend.

Nearest support levels:

S1 – 1.3306

S2 – 1.3184

S3 – 1.3062

Nearest resistance levels:

R1 – 1.3428

R2 – 1.3550

R3 – 1.3672

Trading recommendations:

The GBP/USD pair is trying to resume the 2025 uptrend, and its long-term prospects remain unchanged. Donald Trump's policy will continue to pressure the U.S. economy, so we do not expect the dollar to strengthen. Thus, long positions with targets at 1.3550 and 1.3672 remain relevant in the near term as long as the price remains above the moving average. A price below the moving average suggests consideration of small short positions, targeting 1.3323 on technical grounds. From time to time, the U.S. currency shows corrections (in the global picture), but for the trend to strengthen, it needs signs of an end to the trade war or other global positive factors.

Explanations of the illustrations:

• Linear regression channels help determine the current trend. If both are directed the same way, the trend is strong.
• The moving average line (settings 20,0, smoothed) indicates the short-term trend and the direction in which trading should proceed.
• Murray levels are target levels for moves and corrections.
• Volatility levels (red lines) indicate the likely price channel in which the pair will trade over the next 24 hours based on current volatility.
• CCI indicator — its entry into oversold territory (below -250) or overbought territory (above +250) signals an approaching trend reversal.