4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 47.5674
The British pound paired with the US dollar continues the "swing" on which it has been riding for more than three weeks. At the end of last week, the pair tried to start a round of downward movement and break out of the flat, in which it had been for more than two weeks. It was helped by a fairly strong ADP report in the US. However, on Friday, the bears were disappointed in a somewhat weak Nonfarm Payrolls report in the same States. So, for the moment, everything remains in place. The pound/dollar pair continues to stay inside a very narrow side channel, the boundaries of which lie approximately at the levels of 1.4100 and 1.4220. We once again draw traders' attention to the fact that this is usually very rare, when the price gets close to its multi-year highs, to the peak of the previous trend, trades flat for three weeks, and then ends the trend.
Therefore, we are inclined to believe that the upward movement will continue no matter what. Both technical factors and global fundamentals continue to speak in favor of this. Recall that in 2020, the long-term downward trend is expected to end. No currency can become cheaper or more expensive all the time, so after 13 years of falling, the pound has finally perked up, clearly helped by the United States with its trillion-dollar fiscal and monetary stimulus programs. Thus, from a technical point of view, a new global upward trend has just begun. Therefore, it will not end very soon. Global fundamentals also continue to speak in favor of the pound. Please note that the latest COT report, which shows the actions of large players, showed an increase in the number of short positions. However, it did not affect the rate of the British pound itself. But the US authorities, along with the Federal Reserve, continue to pour hundreds of billions of dollars into their economy, fearing that China will begin to reduce the economic gap. These factors continue to have a destructive impact on the dollar exchange rate.
Meanwhile, the G7 countries have signed an agreement under which all large corporations will pay a single income tax of at least 15%. On this occasion, British Finance Minister Rishi Sunak said: "Today in London, my colleagues and I came to a historic agreement on global tax reform, requiring the largest multinational corporations to pay their fair share of taxes to the UK treasury." Recall that large companies that operate worldwide had the opportunity to legally evade the payment of a specific part of taxes by registering their divisions in countries with low tax rates. Thus, any large corporation will be obliged to deduct at least 15% to the country's treasury where its head office is located. It is bad news for small countries called "tax havens." Recall that such countries specifically set small tax rates for large companies, as they transfer their production to them, actively developing business in these countries, which is beneficial since they create jobs and strengthen the economy. Large companies will not make much sense to place their production conditionally in Malaysia since income tax will still have to be paid wherever the company conducts its business and wherever its divisions are located. From our perspective, this will not lead to the transfer of production of these companies back to developed countries. In addition to taxes, the availability of raw materials, its cost, the cost of logistics, and the cost of labor are still very acute for business. Therefore, it seems that the only thing that will change is the taxes collected by large countries, including large corporations. Thus, most likely, the prices of final products will rise, and these taxes will eventually be paid by consumers and not by corporations, which clearly will not work with low profitability or at a loss. Moreover, now they will have an iron foundation to raise the cost of their products: taxes have increased.
As for the British pound specifically, all these problems do not worry it too much yet. The UK, a member of the G7, will collect more taxes, which means it will spend more on its development. But the States will also collect more taxes. Recall that this issue with the increase in corporate taxes arose when many countries got into huge debts, thanks to programs to stimulate their economies. Budgets are impoverished, so they need to be filled. In the United States, by the way, they want to raise domestic taxes for rich Americans and large companies. Thus, we can say that this is a universal initiative. The pound is still reacting more to global factors that do not change. There are hopes that when the United States stops pouring hundreds of billions of dollars into its economy, the balance of power between the pound and the dollar will soften slightly. The dollar will stop depreciating. But we expect such a scenario not earlier than by the end of 2021 and maybe by the middle of 2022. Thus, in the coming months, most likely, depreciation of the US currency will continue. In the near future, the next meetings of the Bank of England and the Fed will take place, at which it will be possible to understand how much the regulators are looking in the direction of curtailing QE programs (there is no talk of raising the rate, no matter what anyone says). If there is news from regulators, this may affect the exchange rate of the pound/dollar pair. But while there is no such information, everything remains in its place.
The average volatility of the GBP/USD pair is currently 99 points per day. For the pound/dollar pair, this value is "average." On Tuesday, June 8, we expect movement within the channel, limited by the levels of 1.4081 and 1.4279. A reversal of the Heiken Ashi indicator back down will signal a new round of downward movement within the "swing."
Nearest support levels:
S1 – 1.4160
S2 – 1.4130
S3 – 1.4099
Nearest resistance levels:
R1 – 1.4191
R2 – 1.4221
R3 – 1.4252
Trading recommendations:
The GBP/USD pair has started a new round of upward movement on the 4-hour timeframe. Thus, today it is recommended to stay in buy orders with targets of 1.4221 and 1.4252 until the Heiken Ashi indicator turns down. Sell orders should be opened in the event of a reversal of the Heiken Ashi indicator downwards with targets of 1.4130 and 1.4099. The pound now continues to move flat.
