Wednesday Trade Review:

1H Chart of GBP/USD

The GBP/USD pair dropped sharply and unexpectedly once again. There was no macroeconomic or fundamental news yesterday, but over the last two days, speeches from the heads of the Bank of England and the Federal Reserve may have prompted the fall of the British pound. We believe the issue was not so much in the rhetoric of Bailey or Powell, but in the market's interpretation of their statements. For example, many think Powell "closed the door" to aggressive monetary easing. Maybe he did—but the Fed never really opened that door in the first place. The market came up with this narrative on its own, and then became disappointed. The same goes for Andrew Bailey's words. The BoE governor only allowed that the key rate could be reduced further if inflation slows. The market took this as a "dovish" hint, ignoring the fact that inflation in the UK has been rising for a year and is now double the regulator's target. Therefore, the pair's decline was simply due to the market interpreting the facts in a manner that suited it.

5M Chart of GBP/USD

On the 5-minute timeframe on Wednesday, a good sell signal formed overnight. By the time the European session opened, the price had only moved nine pips away from where the signal formed, so it made sense to open a short then. Subsequently, the price broke through the 1.3466–1.3475 area and missed the 1.3421 level by only four pips. In any case, novice traders had ample time and opportunity to close shorts at a profit.

How to Trade on Thursday:

On the hourly chart, GBP/USD has settled below the trendline, indicating a potential technical correction after weeks of gains. As we've said, there is no basis for dollar strength, so we expect the medium-term move to remain upward. The daily chart clearly shows the main trend.

On Thursday, the pair could resume its decline. A bounce from the 1.3466–1.3475 area would allow for new shorts targeting 1.3413–1.3421. Long trades can be considered if the price closes above 1.3466–1.3475, with a target of 1.3529–1.3543.

On the 5-minute timeframe, you can currently trade around the following levels: 1.3102–1.3107, 1.3203–1.3211, 1.3259, 1.3329–1.3331, 1.3413–1.3421, 1.3466–1.3475, 1.3529–1.3543, 1.3574–1.3590, 1.3643–1.3652, 1.3682, 1.3763.

Thursday brings an empty calendar for the UK, but two notable releases from the US are scheduled: Q2 GDP (final estimate) and durable goods orders.

Core Trading System Rules:

1. Signal Strength: The shorter the time it takes for a signal to form (a rebound or breakout), the stronger the signal.
2. False Signals: If two or more trades near a level result in false signals, subsequent signals from that level should be ignored.
3. Flat Markets: In flat conditions, pairs may generate many false signals or none at all. It's better to stop trading at the first signs of a flat market.
4. Trading Hours: Open trades between the start of the European session and the middle of the US session, then manually close all trades.
5. MACD Signals: On the hourly timeframe, trade MACD signals only during periods of good volatility and a clear trend confirmed by trendlines or trend channels.
6. Close Levels: If two levels are too close (5–20 pips apart), treat them as a support or resistance zone.
7. Stop Loss: Set a Stop Loss to breakeven after the price moves 20 pips in the desired direction.

Key Chart Elements:

Support and Resistance Levels: These are target levels for opening or closing positions and can also serve as points for placing Take Profit orders.

Red Lines: Channels or trendlines indicating the current trend and the preferred direction for trading.

MACD Indicator (14,22,3): A histogram and signal line used as a supplementary source of trading signals.

Important Events and Reports: Found in the economic calendar, these can heavily influence price movements. Exercise caution or exit the market during their release to avoid sharp reversals.

Forex trading beginners should remember that not every trade will be profitable. Developing a clear strategy and practicing proper money management are essential for long-term trading success.