4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -7.1632
On Friday, May 21, the British pound slightly corrected downwards and reacted very well to macroeconomic statistics, which is not often. However, for now, we would like to draw the attention of traders to another point. Namely, how the pound/dollar pair slowed down in an upward movement near the level of 1.4220. Simply put, each subsequent price peak is at a much smaller distance from the previous one. A couple of months ago, we said that this is a serious sign of the drying up of the "bullish" trend for bitcoin. Subsequently, bitcoin collapsed by more than $ 35,000 and lost more than 50% of its value. About the same thing is now observed for the pound. The only confusing thing is that the pound is not a cryptocurrency. It cannot fall without a reason to a high value. Moreover, there are much more participants in the foreign exchange market than in the cryptocurrency market. The pound will not be allowed to fall quickly and strongly. In addition, the fundamental background, or rather global fundamental factors, remains in favor of the pound. Therefore, it is impossible to conclude that the pound can fall significantly. However, in technical terms, everything looks as if the pound will rush down on Monday.
On Friday, quite a lot of interesting data was published, and we did not even expect that almost all the reports would be worked out by the markets. Early on Friday morning, the UK released a report on retail sales, which showed an increase of 9.2% every month, as well as 42.4% on an annual basis. However, despite all the positivity of this report, the problem here is the same as with inflation, and with any other report for April or May. The fact is that last March-May, most of the macroeconomic indicators around the world fell. Therefore, it is unlikely that the current "giant" increases in indicators (and even then, not for all reports) can be considered "real". Of course, if last April the pandemic was raging and the countries were isolated from each other, then this April, compared to the past, there are huge increases in indicators. But let's not belittle the success of the British economy. It has already suffered a lot lately. Also in Britain, the indices of business activity in the services and manufacturing sectors have significantly increased, and there is no "reference" to last year. Business activity in the Foggy Albion is indeed growing very briskly, as more than 40% of the adult population in the country has already received both vaccinations against COVID-2019 and more than 70% have received at least one dose of the vaccine. Quarantine restrictions are being actively lifted in the country, and it has recently been proven that existing vaccines also cope well with the "Indian" strain of the virus. Thus, both business and economic activity is growing, which is very necessary for the British economy, which, like the European one, has not been doing well in the last two quarters.
However, in the second half of the day, no less positive data on business activity in the US manufacturing and services sectors were released. There, the figures were 61.5 and 70.1 points. The index for the service sector, which suffered the most during the quarantine, was particularly impressive. Thus, this index can now be used to determine how strongly quarantine restrictions affect economic recovery. In the States, they have almost no influence. Thus, in the second half of the day, we have already seen a slight strengthening of the US currency. However, all the macroeconomic statistics, as we said earlier, have only a local impact on the movement of the pair. In other words, for any macroeconomic or fundamental event, we can see the reaction of the markets. However, it is unlikely to affect the main trend. The pound continues to be very high. If the markets took into account the entire fundamental background, especially from the UK, then the pound should be around the 30th level, but not around the 42nd, and also with an eye to something more. But now the "speculative factor" continues to work, the factor of pouring hundreds of billions and trillions of dollars into the American economy. Therefore, we believe that there is still more probability of further growth of the British currency and not vice versa. Although in technical terms, of course, the picture is very similar to preparing the pair for a collapse.
Separately, I would like to talk about the position of the Bank of England. It so happened that recently, many traders pay great attention to the actions and statements of regulators. We can not say that this has any special effect on the movement of the main currency pairs, however, the attention directed to the regulators is considerable now. Unlike the ECB and the Fed, the Bank of England and its chief executive, Andrew Bailey, have clearly stated that they do not expect inflation above 2.5%. He noted that even this level of inflation will only be reached by the end of this year. According to Bailey, the Bank of England expects inflation to accelerate, but mainly due to rising energy prices. "We don't expect this momentum to continue," Andrew Bailey said. "Fiscal policy measures have provided significant support to the economy this year, but they will begin to wind down next year." Thus, the head of the BA openly stated that in 2022, the regulator wants to start curtailing the incentive program. Although the economy is unlikely to have time to reach the pre-crisis trajectory of economic growth by this time. And although a few months ago, rumors were in full swing that the Bank of England is considering a new reduction in the key rate and is actively studying this issue. But, as we can see, the rhetoric has changed, and the Bank of England is already preparing to tighten monetary policy. However, this will happen again not earlier than 2022. And you can't get far on rhetoric alone. And the pound does not need to go somewhere on the rhetoric. He is already very far away and may go even further even without any "hawkish" hints from the Bank of England and its chairman. Thus, the BA position is interesting, but also does not change much for the pound/dollar pair.
The average volatility of the GBP/USD pair is currently 79 points per day. For the pound/dollar pair, this value is "average". On Monday, May 24, thus, we expect movement within the channel, limited by the levels of 1.4068 and 1.4226. The reversal of the Heiken Ashi indicator back up may signal the resumption of the upward movement.
Nearest support levels:
S1 – 1.4099
S2 – 1.4038
S3 – 1.3977
Nearest resistance levels:
R1 – 1.4160
R2 – 1.4221
R3 – 1.4282
Trading recommendations:
The GBP/USD pair has started a new round of correction on the 4-hour timeframe. Thus, today it is recommended to open new buy orders with the targets of 1.4221 and 1.4226 after the reversal of the Heiken Ashi indicator to the top. Sell orders should be opened if the pair's quotes are fixed below the moving average with targets of 1.4068 and 1.4038.
