4-hour timeframe
Technical details:
Higher linear regression channel: direction - sideways.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 49.2806
The British pound was trading very weakly on Monday. However, the upward trend continues as the price continues to be located above the moving average line. Thus, the upward movement may continue in the near future, as all the main factors that have recently influenced the pound/dollar pair remain. There hasn't been much news from the UK lately. In the Foggy Albion, quarantine is being relaxed amid high vaccination rates. Since yesterday, most public places have been opened, Britons will be able to travel abroad, and schoolchildren will sit in class without masks. It should certainly have a positive impact on the economy, which will now have to recover faster. And at the same time, long-suffering Britain is again facing an increase in the incidence of the "coronavirus," this time its "Indian strain." Several British cities have already been affected. Thus, many of Boris Johnson's advisers suggest not rushing with the complete lifting of restrictions scheduled for the second half of June. The UK health secretary warns that the new strain of COVID can be 50% more contagious than usual and spread faster. However, the British government does not want to cancel the plan to lift quarantine restrictions. Instead, they are going to play ahead of the curve. The logic is simple: the sooner the entire UK population gets the vaccine, the fewer the cases, and new deaths. In those areas of Britain where the most cases of the "Indian strain" are recorded, people of all ages are offered to be vaccinated. Thus, it is still very early to talk about a complete victory over the virus, even within the well-vaccinated UK. However, the positive dynamics are visible to the naked eye.
However, we are most interested in the rate of the British pound. The high rate of vaccination in the UK is good news. However, we recall that the rate is very high in the US, and quarantine restrictions are also being lifted. Therefore, it is hardly possible to conclude that the reasons for the growth of the British currency are the rate of vaccination of the population. The pound continues to grow due to the "speculative factor" and the factor of pouring huge sums into the American economy. It ignores all negative information, such as the "Scottish question," strained relations with the EU, Brexit and its negative impact on the economy, the decline in the economy in the first quarter of 2021, and the tension on the island of Ireland. However, the pound shows signs of reaction to the macroeconomic statistics from time to time, so let's look at what awaits us during this week. Yesterday, on Monday, there were no macroeconomic events. At least, they deserve attention. Several speeches by representatives of the Fed and the Bank of England rarely make the markets frantically open and close deals. However, today in Britain, the unemployment rate, data on the number of applications for unemployment benefits, and changes in the level of average wages will be published. Since the beginning of the crisis, this data has not interested traders at all. However, if there is a strong discrepancy between the actual value and the forecast value, we can expect a certain reaction to these reports. There will also be a speech by the Bank of England Governor Andrew Bailey today. However, there is little hope for new and important information. Recall that last week, Bailey spoke three times and each time failed to impress the markets, talking about cryptocurrencies and the digital pound. Recall that even earlier, there were several conversations about a possible reduction in the key rate. However, the regulator did not resort to this tool, and later the conversations ended.
On Wednesday, the UK is scheduled to publish an inflation report, the retail price index, the purchase price index, the selling price index, and the house price index. The inflation report, projected to accelerate to 1.4% y/y, will be of the most significant interest. Core inflation may rise to 1.3% y/y. Such figures are very low for the pound to receive additional market support. However, the pound does not need additional reasons for growth right now. On the evening of May 19, the Fed's minutes will be published, which may provide the markets with unknown information. However, it is unlikely to be important, so there will be no reaction to this event. Thursday will be relatively empty. Only in the United States will the report on applications for unemployment benefits be published, which has long been of no interest to traders to such an extent that they actively trade immediately after its release. On Friday, reports on retail sales in the UK, business activity indices in the services and manufacturing sectors. Similar indices will be published in the United States. Thus, for the entire current week, we consider retail sales and the level of inflation in the UK to be really important reports. Let's see if this data can somehow affect the current technical picture.
Recall that in the long term, the pound is very close to its 3-year highs around the level of 1.4240. Given that the upward trend has resumed, as evidenced by both the Ichimoku system and the "Linear Regression Channels" system, we have the right to count on the continued growth of the British currency. Thus, the option with an upward trend now remains the main one. And, most likely, a new round of upward movement will not even be provoked by any important fundamental or macroeconomic events. Most likely, traders will continue to buy the pound, and the US dollar will continue to devalue due to the inflated money supply in the US. However, fixing the price below the moving average line for some time will put aside the option of continuing to move north.
The average volatility of the GBP/USD pair is currently 73 points per day. For the pound/dollar pair, this value is "average." On Tuesday, May 18, we expect movement within the channel, limited by the levels of 1.4054 and 1.4200. A reversal of the Heiken Ashi indicator downwards may signal a round of downward correction.
Nearest support levels:
S1 – 1.4099
S2 – 1.4038
S3 – 1.3977
Nearest resistance levels:
R1 – 1.4160
R2 – 1.4221
R3 – 1.4282
Trading recommendations:
The GBP/USD pair resumed its upward movement on the 4-hour timeframe. Thus, today it is recommended to stay in long positions with the targets of 1.4160 and 1.4200 until the new turn of the Heiken Ashi indicator down. Sell orders should be opened if the pair's quotes are fixed below the moving average with targets of 1.3977 and 1.3916.
