What to say about the pound on the eve of the new trading week? The pound / dollar pair continues to move like a “swing”. At the same time, the upward trend also persists, and the entire movement after February 24 is interpreted as a correction. However, the correction is still weak, as the uptrend from the low to the high was 28 cents, and the correction was 5. Moreover, the “swing-like” movement continues not only recently. The entire last turn of the uptrend, which took about 5 months, was also held under the flag of the “swing”. This can be seen with the naked eye in the illustration above. Thus, nothing changed for the pound sterling last week. If short-term trends are clearly visible for the euro, which add up to long-term trends, then the pound is now undergoing a correction, and its internal turns are very difficult to work out on the charts above the hourly. At the end of last week, the quotes resumed their downward movement, as we warned: within the swing, movements of 250-300 points should alternate. Thus, we expect the downward movement to continue next week. As for the fundamental background, it does not really matter now. We have already repeatedly listed all the problems of the UK and its economy. In the beginning it was a list of political and economic problems, mostly related to Brexit and the pandemic. Now geopolitical problems have been added to it, and economic ones have worsened. However, the pound sterling is still too high relative to such a fundamental background from Foggy Albion. The American fundamental background is also not very important now, as it is crossed out by the trillions of dollars that the US authorities and the Fed are pouring into their economy. They are pouring in and are going to pour in in 2021. Probably, this and “speculative” factors are the reasons that keep the pound sterling so high.
Next week there won’t be a lot of “foundation” and “macroeconomics” again. And what difference does it make if most of both are ignored? This conclusion is especially relevant when we are talking about the pound / dollar. Nevertheless, it is not recommended to completely ignore statistics and news, because within the day they can still cause a market reaction. On Monday in the United States, you should pay attention to the index of business activity in the manufacturing sector ISM. Its value will be very high, so traders are unlikely to react to it in any way. On Tuesday, already in the UK, there will be an index of business activity for the manufacturing sector, also with a high forecast for April. On Wednesday, watch out for the ADP report on changes in the number of employees in the US private sector, as well as the reports on business activity in the services sector ISM and Markit. However, we believe that there will be no reaction to this data either. The ADP report was of the last interest to the markets even before the pandemic. Once it was a really important report, now, in “post-pandemic” times, it is not. On Thursday, perhaps the most interesting event of the week will take place – the meeting of the Bank of England. As in the case of the Fed, no one expects any changes in monetary policy from the British regulator. However, while the Fed was expected to give even hints of a possible curtailment of the quantitative stimulus program, no one expects hawkish hints from the Bank of England at all. The American economy is now recovering at a pace that suggests the completion of the stimulus process in the foreseeable future. In the UK, GDP is expected to fall again by 1.4% in the first quarter of 2021, while the US economy expanded by 6.4%. So what hawkish hints can we expect from the British regulator? Consequently, the most interesting developments will be the Bank of England’s Monetary Policy Report and Andrew Bailey’s speech. NonFarm Payrolls, unemployment rate and change in average wages will be published in the US on Friday. I would like to say that the NonFarm Payrolls report can provoke a strong reaction, but remember what was the significance of the previous NonFarm Payrolls report and what the reaction was. For those who do not remember, recall that the euro and the pound then lost 10-12 points, while the number of new jobs created in the US non-agricultural sector amounted to 916 thousand. Both couples that Friday stood dead in one place and did not move from it. Thus, whatever the value of Nonfarms for April, this does not at all guarantee that at least some kind of market reaction will follow.
Thus, most of the reports and events for the coming week will potentially not trigger any market reaction. Consequently, the same movement will remain that is observed at this time, the last months and the last six months.
Recommendations for a couple GBP/USD:
The pound / dollar pair on the 4 hour timeframe is trying to start a new downtrend. Although, of course, it is rather difficult to call a movement by 250-300 points a “trend”. At the moment, the quotes of the pair have consolidated below the critical line and the Ichimoku cloud, so the downward movement should continue next week. However, such movements fully fit into the “swing” mode, when the pair alternates periods of growth and fall of 250-300 points. Therefore, we expect a descent to the 37th level area within the next five working days.
Explanations for illustrations:
Price levels of support and resistance (resistance / support) – levels that are targets when opening purchases or sales. You can place Take Profit levels near them.
Indicators Ichimoku, Bollinger Bands, MACD.