The GBP/USD currency pair did not continue its downward movement on Friday, but at the same time updated its 2-year lows. Now the pair is trading near the level of 1.2329 and will try to overcome it in the new week. The situation for the pound is about the same as for the euro. The pound has been falling for a long time, strongly and almost recoilless. That is, the reasons for the growth of the British currency are the same now: there should be an upward correction in global terms (on a 24-hour TF). However, everything will depend solely on the traders. If market participants continue to sell the pound, no matter what, then no correction will work. We have been counting on the support of the Bank of England for a long time, which tried its best and raised the rate 4 times already, but the market shows its almost complete disinterest in working out this aspect. And the Fed's rate is now the same as that of the Bank of England. That is, there is no need to talk about a serious fundamental advantage of the dollar over the pound. Macroeconomic indicators in the United States now remain strong. Perhaps everything except GDP, which in the first quarter showed a drop of 1.4%. It's not entirely clear yet, is this an accident or a trend? GDP in the UK will be published this week, and we will be able to compare the state of the economies in the first quarter. However, in any case, it is unlikely that such a strong fall in the British pound is possible based on the "macroeconomics" factor alone.
Consequently, the market continues to react to geopolitics. It remains very heavy. The military conflict in Ukraine shows no signs of ending in the near future. The whole of Europe is on the verge of a food and energy crisis. And it's good if only on the threshold of a crisis, and not on the threshold of a full-scale war. It's no secret that Finland and Sweden are going to join NATO this summer. Moscow has repeatedly stated that "it will be forced to react to this step" since it has a long border with the Finns. Thus, according to the Kremlin's logic, to prevent NATO military bases from appearing near the borders with Russia, another military operation should be carried out, as in Ukraine. We do not believe in the possibility of holding it yet, however, relations between NATO and the Russian Federation will only heat up. Moscow has also repeatedly warned Poland that it is walking on a knife's edge, providing serious assistance to Ukraine. There is unrest in Transnistria now. If military actions spill out beyond the borders of Ukraine, it will practically mean the Third World War, in which the UK will not be able to stay away, as well as the European Union.
Has American inflation started to slow down?
Quite important publications are planned in the UK this week, but they will take place only on Thursday. The levels of GDP, industrial production, trade balance, and many other less important indicators will become known. We are most interested in the GDP indicator, as it will show whether the Bank of England can continue raising the rate in 2022 or not. The GDP forecast for the first quarter is 0.9-1.0% q/q. This is a pretty good increase, but what will be the actual value?
In the United States, this week, there will be a series of speeches by representatives of the Fed, who can now only talk about inflation and monetary policy. We need to understand now how aggressive the Fed is, although even from Jerome Powell's latest speech it is clear that it is very aggressive. Inflation in April will be of no small importance (the report will be released on Wednesday). According to forecasts, the consumer price index may slow down from 8.5% to 8.1-8.2%. And if this forecast comes true, it can greatly affect the market. If inflation starts to slow down, the Fed's aggressive approach will be replaced by a softer one. Thus, the question will already stand like this: how quickly inflation will decline. But so far, we do not think that we should expect a serious drop in the CPI. It should be remembered that the reasons for the increase in inflation lie not only in the plane of the Fed's monetary policy. Disruption of logistics chains, a pandemic, military actions in Ukraine, and rising energy prices, all will continue to create inflationary pressure. Consequently, one rate and the QT program are unlikely to bring inflation back to the target level of 2.0%.
The average volatility of the GBP/USD pair over the last 5 trading days is 170 points. For the pound/dollar pair, this value is "very high". On Friday, May 6, thus, we expect movement inside the channel, limited by the levels of 1.2166 and 1.2505. The upward reversal of the Heiken Ashi indicator will signal a new round of upward correction.
Nearest support levels:
S1 – 1.2329
S2 – 1.2207
S3 – 1.2085
Nearest resistance levels:
R1 – 1.2451
R2 – 1.2573
R3 – 1.2695
Trading recommendations:
The GBP/USD pair failed to adjust on the 4-hour timeframe. Thus, at this time, you should stay in sell orders with targets of 1.2207 and 1.2166 until the Heiken Ashi indicator turns up. It will be possible to consider long positions if the price is fixed above the moving average line with a target of 1.2695.
Explanations of the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
