The British pound sterling continues its systematic decline as part of the correction against the upward trend that lasted for a year. The correction is still very weak and there is currently no correlation between the EUR / USD and GBP / USD. Basically, the 24-hour timeframe is now so eloquent that, looking at it, everything really becomes clear. The entire uptrend that began last March does not even fit into an illustration. Let’s remind that its length is 2800 points. What is placed on the illustration is a correction against this trend, which took 35 working days (that is, about a month and a half) and 560 points down. It cannot be said that this is very little, the pound / dollar pair was still declining, but compared to the whole trend, it is still not enough. Most importantly, the vast majority of fundamental factors were and remain against the pound sterling. This is Brexit, this is the “Scottish question”, this is the Northern Ireland protocol, this is the economic decline this winter due to two “lockdowns”, this is the reduction of trade turnover with the EU countries in 2021. However, despite all these problems, the trend for the pair remains upward. From our point of view, the explanation for what is happening can be all the same. Strong inflation of the US money supply. However, in the case of the pound sterling, the “speculative factor” also plays a role. Look at the 24-hour timeframe on a smaller scale so you can see the trades over the past 4 years. After a referendum decision was made to secede from the European Union, the pound sterling fell by 2800 points. If we take the minimum point for the last 4 years, then at 3400 points. With an absolutely negative fundamental background from the UK. Over the last year of the pandemic, when things were very unhealthy in the UK, the pound rose by 2800 points. This moment shows in the best possible way that there are “invisible” factors that now rule the market. From our point of view, this is a “speculative factor” and a factor of pumping trillions of dollars in the American economy. Thus, whatever the current fundamental background in Foggy Albion, the trillions of dollars that have poured into the American economy will “pull the blanket over themselves” much more efficiently.
Recall that the key topic of recent weeks for the UK is riots on the island of Ireland. As expected, Boris Johnson’s “mechanism” to prevent the emergence of the border between Northern Ireland and Ireland is working on a “C”. People on the island are unhappy with the fact that the border has actually appeared (it could not have been otherwise). Thus, clashes began between the nationalists who want to reunite Ireland and Northern Ireland, the forces that are in favor of a “United Britain” and the police. Simply put, people on the island of Ireland are unhappy with the Northern Ireland Protocol and the Brexit agreement that affects their countries. This is exactly what they feared in London, because only in 1998 was it possible to end the 30-year bloody confrontation on the island of Ireland. Now all this smoldering fire can break out with renewed vigor. It is noteworthy that London is in no hurry to intervene. For example, last week there was a proposal to convene an emergency meeting with the participation of representatives of the authorities of Ireland, Northern Ireland and England. But in London they abandoned this idea and only send additional forces to the island to confront the rebels.
In the UK next week there will be a lot of different interesting information. For example, on Tuesday will be published data on unemployment, claims for unemployment benefits and changes in the level of wages in the country. Not the most important reports. Traders do not react to unemployment for a long time, neither to the American, nor to the British. The more important report will be published on Wednesday – CPI in March. Inflation, according to experts, may grow to 0.7-0.8% y / y from the current 0.4% y / y. Needless to say, such values are very far from the target of the Bank of England? In any case, we draw the attention of traders that if the Central Bank sets a target of 2% inflation, this does not mean that the acceleration of inflation is good for the pound sterling. A striking example was last week, when US inflation accelerated to 2.6% y / y, and the US dollar reacted with a fall. Rising inflation is bad for the national currency. On Friday, the UK will publish a report on retail sales for March, which could grow by 1.4-1.5% on a monthly basis, as well as reports on business activity in the service and manufacturing sectors for April, which are almost guaranteed to cause no reaction. … In the United States, this day will also be published data on business activity and this is the only macroeconomic statistics that is scheduled overseas next week.
What can we say about the prospects for the pound sterling in the coming weeks. Despite the fact that the entire fundamental background continues to be not in favor of the pound, we are expecting the growth of the pound. The reasons were described at the beginning of the article. Of course, this does not mean that the global correction will be 100% complete tomorrow. It can continue for some time. But traders can see in the illustration above how powerful it is. This movement can hardly be called a “trend”. Thus, the price fixing above the Kijun-sen and Senkou Span B lines can be interpreted as a strong signal for the resumption of the uptrend.
Recommendations for a couple GBP/USD:
The pound / dollar pair on the 4 hour timeframe is trying to start a new uptrend. However, the movement on this timeframe now most of all resembles a “swing”. The pair alternates between upward and downward segments of 250-300 points with a general minimum downward slope. Thus, now the price has overcome the Ichimoku cloud and the critical line, but this does not guarantee at all that the pair will now go up at least another 200-300 points. Nevertheless, the trend is upward – we are trading upward. Best of all, using even lower timeframes.
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.