4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 113.3477
On Friday, May 28, the British pound made the same movements like the European currency. It seems that the markets on the last trading day of the week panicked a little because of the presented budget for the 2022 fiscal year in the United States, which implies higher taxes for the rich and a strong increase in spending, which will again lead to a budget deficit of almost $ 2 trillion. However, if the European currency fell below the moving average line, the pound did not even get it. Thus, the pound continues to remain near its 3-year highs and is currently 50 points lower. Over the past week, the pound/dollar pair has been trading in a side-channel with a width of 120 points, and it is not yet visible that it is trying to leave this range. Many traders believe that if the price cannot break through any level for a long time, the bulls will eventually retreat from the market. We believe the opposite: if traders persistently try to overcome any level, then sooner or later, they will succeed. Thus, we expect a further upward movement in the situation with the pound, although the pound has already climbed very high. But, as the latest news shows, the US economy will continue to be saturated with hundreds of billions of dollars, so the global factors for the dollar do not change. Consequently, both the euro and the pound should continue to grow. Of course, as we said earlier, there can always be some new data that will change the current fundamental background, but so far, nothing like this is visible.
In the UK, meanwhile, talk of inflation continues. Recall that the last report showed its acceleration to 1.5% y/y, which is not a high value. However, the indicator, as in many other countries of the world, began to accelerate. Thus, the Foggy Albion also started to panic about this. However, the Bank of England governor, Andrew Bailey, immediately reassured markets and investors, saying that the acceleration in inflation is a temporary phenomenon and unlikely to exceed 2.5% during the year. And when this mark is reached, it is guaranteed to start slowing down. But the Bank of England's chief economist, Andy Haldane, said there was a certain likelihood that inflation would eventually lead to strong price increases, prompting demands from British workers for higher wages. Thus, Haldane believes that inflation is a threat to the British economy, and it needs to start fighting now. Andy Haldane was the only one who voted to cut the QE program at the regulator's meeting this month. "We have a risk of repeating the spiral of "hiring costs" that we sometimes saw in the past, in the seventies and eighties," Haldane said. However, most other members of the BA monetary committee believe that inflation will accelerate only temporarily. The general view of the Bank of England is that inflation may jump under the influence of one-time factors that are associated with the pandemic. For example, because of the rise in oil prices. Recall that last week, one of the representatives of the BA, Gertjan Vliege, said that the regulator could raise rates as early as next year if the economy recovers at a high pace. Many experts believe that now it is the Bank of England that will receive increased attention, as it may become the first bank among the trio of the ECB, the Fed, and the BA that will raise the rate. Also, accordingly, now BA will be expected to reduce the quantitative stimulus program because it would be strange if the QE program continued to work, and the rate increased at the same time. In general, the June meeting of the BA should be very interesting. And the pound on this "hawkish" information from the British regulator may continue to grow.
Moreover, it does not pay any attention to politics now. Although it is better to say otherwise: "the pound generally pays little attention to anything now." Certainly not on macroeconomics. However, in the UK, at the center of a new scandal was Prime Minister Boris Johnson. He managed last year to declare "his preference to see a mountain of corpses than to introduce a second lockdown" with many witnesses in Parliament. And in big politics, such mistakes are not forgiven. Naturally, this story was about an inflated "elephant." First, the Labor leader Keir Starmer was "horrified" by the callousness of Boris Johnson. Then the former chief adviser to Boris Johnson came out with a whole mountain of accusations against the current government over the failed fight against the pandemic. According to Dominic Cummings, the government was completely incompetent, made many mistakes, and the Minister of Health should have been dismissed last year. Many of Cummings' accusations are not without meaning, but we recall a similar story in the United States, when in the last year of Trump's presidency, his former adviser John Bolton also began to criticize the current president openly, told about many situations where Trump showed himself to be an incompetent person, and then published a book dedicated to his work in the White House, where of course attention was paid to Donald Trump. As a result, Trump lost the election and became one of the few presidents in the United States history who failed to be re-elected to a second term. Something similar may happen to Boris Johnson, who has also accumulated many complaints during his reign. And the more mistakes he makes, like the phrase "mountain of corpses," the more he makes repairs to his apartments with donations from the Conservative Party, the more often he goes on vacation to private villas on private islands, the more questions, and complaints he has.
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 31, we expect movement within the channel, limited by the levels of 1.4107 and 1.4265. A reversal of the Heiken Ashi indicator back down may signal a new round of downward movement.
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.
