Based on a long-term analysis of historical data, the average positive and negative daily returns are approximately 0.43% and -0.43% , respectively. The estimated daily return in both directions based on their probability of occurrence is 0.21% and -0.21% . Yesterday´s return was 0.61% , which is between the first and second standard deviation. Our scoring is currently negative (-2 ) for the month-on-month change and 0 for price indexation. This means that the periodic change is negative, and the indexation is in an extreme declining phase of the cycle. Both scorings range from -3 up to 3 . The development of the estimated cycles based on our analytical systems is shown in the following chart.
Different moving averages (MAs) help us better identify trends across multiple time frames. We use 3 basic MAs to find out which sentiment dominates each horizon. The purple line represents the monthly , the green line the 6 months and the yellow line the annual moving average. According to the monthly MA, GBP/USD is in bearish sentiment, after falling below it last week. As we can see in the chart below, the 6 months and annual MAs are still in bullish sentiment. In the event of a decline, the 6-month MA can be an important support for the exchange rate.
There have been more downward trends since our last analysis. In the recent week month, a maximum of 5 consecutive days was reached. This is even more than during the outbreak of COVID-19 . However, upward trends in the same period did not exceed more than 2 days. The maximum in the measured period is 8 days in the downtrend and 9 days in the uptrend. To estimate Stop Loss orders for our positions, we could use the average long-term ATR (Average True Range) obtained from daily data (0.85% ). The current value is 0.93% , which normal. Approximately 90% confidence interval (return between -1% and 1% ) is shown in the histogram below by a red rectangle.
We could use the last decile of low to high returns (1.50% ) to estimate Profit Targets, as shown in the chart below.
Basic technical analysis still supports bullish sentiment, as the exchange rate creates higher highs and higher lows. In addition, GBP/USD has also recently been close to the demand zone (green rectangle) with a strong bottom, where are the Fibonacci retracement level of 23.60% and the long-term moving average. The divergence between price development and the RSI could also motivate short-term bulls. However, the short-term MA together with the psychological level of 1.4000 may represent resistance to the exchange rate.