4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -46.0873
The pound stood still on the first trading day of the week. After the pound/dollar quotes once again updated their 2.5-year highs on February 24, a downward correction began, which allowed the dollar to win back about 450 points. However, this correction may already be complete, as in the last week, traders are more inclined to buy than to sell. Therefore, at the moment, the probability of a new hike up is much greater than a new decline in quotes. Both the "speculative" factor and the factor of market participants ignoring the fundamental background from the UK play a role here. All the British problems are simply not taken into account by the markets, and if they are removed from the equation, the pound can continue to grow based on strong growth in the US money supply. This is how things are now for the pound/dollar pair. The most interesting thing is that it is impossible to say with certainty when the markets will again begin to pay attention to the negative from the Kingdom. And whether they will start doing it at all in the near future. After all, if they start, then the downward movement can resume with a new force because the British currency is extremely overbought.
But we must be fair. In the UK, there is also good news, although they relate only to the topic of vaccination of the population, which is taking place at a very high rate. It is reported that by April 4, all residents over 40 years of age can receive the vaccine. Some high-ranking officials report that the entire vaccination procedure of the population may be completed three weeks earlier than originally planned. If there are supply disruptions and shortages of vaccines in the European Union, then the UK reports an increase in supplies, thanks to which it is possible to increase the rate of vaccination. "Vaccine stocks are expected to more than double, allowing the National Health Service to offer a million doses a day," the government said. At the moment, 23.3 million people have already been vaccinated in the country, which is about a third of the total population of the country.
And this is where all the positive news from the Foggy Albion ends. Unless, of course, you count the fact that the quarantine in this country has slowly begun to weaken. On the other hand, almost all economic data continue to indicate the weakness of the economy, the weakness of the pace of economic recovery, the weakness of statistical indicators, and the weakness of the expectations of investors and the population. For example, according to social surveys, the expectations of the UK population for inflation remain at the lowest level for the last 4 years. Residents of the UK expect inflation to reach 2.7% in 2021, which is much higher than the current level of inflation. Recall that all the leading central banks in the world are aiming for 2% inflation, but so far no one has managed to achieve it (BA, ECB, Fed). Also, according to surveys, about 35% expect a rate hike this year, and 35% believe that rates will not be changed. Interestingly, these polls are conducted to find out the change in the trend of general opinion. That is, what do the British expect, an increase or decrease in inflation, for example? It is reported that few Britons have any idea what the real level of inflation in the country is now. It is also worth noting that inflation is an extremely important indicator for all central banks, but the events of the last year and structural changes in the economy show that inflation is not necessarily the price growth (planned and stable, which provides the necessary economic growth). It may also be an increase in the prices of only a certain category of goods, for example, energy, the cost of which has seriously sunk during the pandemic and the crisis and is now simply recovering. Due to such goods, prices increase on average in the chamber, but many categories of goods do not change in price, and the general idea of central banks is not implemented. But now, in any case, there is no point in talking about this, since neither the Fed, nor the ECB, nor the BA has managed to bring inflation to the level of 2% even within one month.
It should also be noted that in his last speech, the head of the Bank of England, whose meeting will be held this week, noted certain advantages for the UK economy. According to Bailey, the impact of "lockdowns" was less on the economy than a year ago. The head of BA expects that by the end of this year, the British economy will reach pre-pandemic levels. Andrew Bailey also expects inflation to rise to 2% in the next few months, but we have already figured out that inflation can be different, and now oil is also growing very seriously, so prices can only rise based on the growth in the cost of energy. The governor of the Bank of England also again raised the topic of negative rates and again did not give any specific information to the markets, saying that the banking system should be ready to implement such a tool, but BA has no idea whether they will be used or not.
Separately, I would like to note that this week there will be meetings of the Bank of England and the Federal Reserve. This time, both central banks are expected to provide specific information on several important issues. From Jerome Powell, the markets are still waiting for comments on the growth of government bond yields and expectations of high inflation. The Bank of England will also expect a new batch of economic forecasts and comments on the weak pace of recovery (GDP in January was -2.9%) and the possible introduction of negative rates. Unfortunately, the pound can easily and simply ignore almost any information. We have repeatedly noted the lack of logic in its movement. Therefore, it is recommended to put technical factors in the first place in terms of significance.
The average volatility of the GBP/USD pair is currently 106 points per day. For the pound/dollar pair, this value is "average". On Tuesday, March 16, thus, we expect movement within the channel, limited by the levels of 1.3786 and 1.3998. A reversal of the Heiken Ashi indicator upward may signal a new round of upward movement.
Nearest support levels:
S1 – 1.3885
S2 – 1.3855
S3 – 1.3824
Nearest resistance levels:
R1 – 1.3916
R2 – 1.3947
R3 – 1.3977
Trading recommendations:
The GBP/USD pair has started a new round of downward correction on the 4-hour timeframe. Thus, today it is recommended to open buy orders with targets of 1.3977 and 1.4008 if the price is fixed back above the moving average line. It is recommended to consider sell orders with targets of 1.3855 and 1.3824 if the price remains below the moving average.
