4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 105.4568
On Monday, May 31, the British pound also traded as calm and boring as possible. The volatility of the first trading day of the week was about 60 points, which is not much higher than the volatility of the euro/dollar pair. Thus, it is possible to draw an unambiguous conclusion that both major pairs were standing in the same place on Monday. Since the pair was standing in one place, no special changes occurred over the past day. We have long drawn traders' attention to the fact that neither the fundamental background, the macroeconomic, nor the technical one changes for the US dollar. In other words, there is no reason to expect that the US currency will suddenly start to rise in price. Based on what? We have been asking this question for a long time in the context of the growth of the British currency. However, later, it became clear that on the one hand, the dollar is under pressure from the factor of pouring trillions of dollars into the US economy, and on the other - the British pound supports the "speculative" factor. This combination leads to the fact that the pound, with a completely failed fundamental background from the UK, has become more expensive against the dollar by 2,800 points over the past 15 months. That is, about as much as the pound fell in the "Brexit period."
At the same time, the pair's quotes are not far from these same highs over the past three years, around the level of 1.4240, and do not experience any pressure. Usually, when the price approaches objectively high values in some particular period, and the bears are ready to seize the initiative, the highs are updated point-by-point. After these point workings, a sharp drop in quotes usually begins immediately. As it happens when the trend ends, a very illustrative example was recently shown to us by bitcoin. If you are interested, you can look at the daily chart. You will see that the quotes reached their absolute maximum value and were almost immediately followed by a sharp and powerful decline. When the currency pair has been trading for about two weeks near its 3-year highs, there is little chance that the trend or its next round will end near these price values. And based on this, we believe that technical factors are now also on the side of the British pound, so we expect that the upward movement will continue further in 2021.
Meanwhile, the heat on the island of Ireland, which took place a few weeks ago, seems to have subsided. Recall that the residents of the island of Ireland, that is, two countries, Northern Ireland and Ireland, one of which now remains in the European Union, and the second - in the UK, are very dissatisfied with how the "protocol on the Northern Irish border" is being implemented. Also, the island is just waiting for its moment to break out a long-standing conflict between Protestants and Catholics, between unionists and separatists. A few weeks ago, riots and protests broke out, and top officials of the participating countries even called for London to intervene. But Boris Johnson then chose not to escalate the situation. No one was killed, the demonstrations were mostly peaceful, and the complaints against the government were not so serious. However, these claims may become significantly larger in October 2021. Recall that at this time, there is a "grace period" on the Northern Irish border.
Simply put, many goods transported from the Kingdom to Northern Ireland pass simplified checks and customs controls at this time. Because of this grace period and its terms at the beginning of 2021, a conflict has already broken out between Brussels and London, as the latter decided to single-handedly change the validity of this "grace period," simply adding to its effect. Brussels immediately accused Boris Johnson of violating the Brexit agreement and threatened proceedings in the courts. It is not yet known how it ended, but in any case, in October 2021, this grace period will end. Thus, from October, strict checks on all imported goods will be applied in the ports of Northern Ireland. As the Democratic Unionist Party of Northern Ireland, Edwin Poots, says, the new checks will be much tougher than those applied to goods from Russia. Poots also reports that only a few ports in Northern Ireland will have 15 thousand checks every week, more than in the largest port in Europe, Rotterdam. "We will have more checks between the UK and Northern Ireland than there are in the EU with Russia, Ukraine, Belarus, and Moldova," Poots said, hinting that the countries listed above are less reliable partners for the EU than the UK. Recall that all this is happening now since Northern Ireland remained part of the Customs Union. Thus, it has access to European markets, but a border between Great Britain and Northern Ireland should have appeared in exchange for this privilege. Since due to the long-standing conflict in Northern Ireland, it was impossible to allow the appearance of a physical border with neighboring Ireland, now the formal border runs along the Irish Sea, and all necessary checks are made in the ports of Northern Ireland.
The British pound is currently not experiencing any particular pressure and is waiting for the right moment to resume the upward movement calmly. In principle, the bulls can only overcome the level of Murray "6/8" - 1.4221, and then there will be much fewer problems with the further march to the north.
The average volatility of the GBP/USD pair is currently 78 points per day. For the pound/dollar pair, this value is "average." On Tuesday, June 1, we expect movement within the channel, limited by the levels of 1.4132 and 1.4288. A reversal of the Heiken Ashi indicator back down may signal a new round of downward movement.
Nearest support levels:
S1 – 1.4191
S2 – 1.4160
S3 – 1.4130
Nearest resistance levels:
R1 – 1.4221
R2 – 1.4252
R3 – 1.4282
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, 1.4252, and 1.4282 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 also continues to move in the flat.
