4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 85.9946
The British pound paired with the US dollar continued to trade very calmly on Tuesday but at the same time with a clear upward direction. Recall that for the euro/dollar pair, the current week is quite boring. However, for the pound/dollar pair, it is very important. The thing is that today the results of the meeting of the Bank of England will be summed up, which will be the last among the three central banks that we pay attention to in our articles. Thus, it is very important to understand what position all members of the monetary committee take since it is one thing to comment on monetary policy and another to vote for specific changes in this same policy. Thus, this week is very important for the pound. At the moment, the quotes of the pound/dollar pair are also recovering after the failure last week, which was caused by the results of the Fed meeting. However, the pound/dollar pair is recovering more quickly and confidently than the euro/dollar. It suggests either that market participants are waiting for "hawkish" rhetoric and "hawkish" decisions from BA or about the "speculative" factor that has been haunting the pound in the last six months. We believe that both of these reasons are viable. Several members of the BA monetary committee have already spoken out in favor of raising rates (naturally, not immediately, but next year) and in favor of ending the quantitative stimulus program. Of course, we are not talking about raising rates now since the British economy is not yet able to tighten monetary policy. GDP is just starting to grow, and inflation has barely reached 2%. Thus, even with such reasons for panic as in the United States, there are no such reasons in the UK now. And the pound has an excellent chance of new growth, even if the Bank of England does not show any readiness to curtail monetary stimulus today. We have already said many times that the global factors that brought the British currency to its three-year highs remain the same and continue to support the pound and create pressure on the dollar.
What can we expect from the members of the monetary committee today? We would put the question exactly like this. Obviously, in June, the Bank of England is unlikely to decide on the end of the QE program. However, it is more important here how many members of the monetary committee will vote "for" the curtailment of this program. At the last meeting of the Central Bank, only Andy Haldane voted to curtail QE, which at the moment already amounts to 825 billion pounds out of the planned 875 billion. Thus, most likely, Haldane will maintain his position on this issue. But a lot will depend on whether anyone else joins it. If one or two more members of the monetary committee vote "yes," then the pound may get real reasons for its growth, not such mythical ones as the US currency received last week. 2 or 3 members supporting the curtailment of incentives may turn into 4 or 5 at the next meeting. And five votes in favor will mean that the program will be completed. Today there may be 5 "yes" votes, but this will be a real surprise, resulting in which the pound can quickly and easily return to its three-year highs. However, it should also be understood that this will be the last BA meeting for Haldane before his departure. Thus, his opinion may not be supported by other MPC members. However, we believe that today everything will be without surprises. It is best supported by the British economy itself, which is just beginning its recovery period. We should not forget that Brexit also has a negative impact on it. Therefore, it is unlikely that the BA will rush to tighten.
Nevertheless, many experts are waiting for a historical event when the BA will be the first to raise rates earlier than the Fed. Although, again, the attitude of the members of the monetary committee themselves speaks against this. Except for Silvana Tenreyro, none of them even hinted at a possible rate increase earlier than 2022. And in 2022, the Fed may raise the key rate. Seven members already expect such a decision of the FOMC out of 19.
It should also be noted that the Bank of England takes a similar position on inflation with the ECB and the Fed. He believes that temporary factors cause the current acceleration of price growth. Given that inflation has risen to only 2% in the UK and is unlikely to rise above 2.5% even at the peak, then there is nothing to panic British financiers at all. Thus, we believe that there will be no changes in the distribution of votes today. Another question is whether the pound will receive additional support if everything remains as it was?
Given that the pound has already recouped more than 200 points from the 340 lost last week after the Fed meeting, we believe that the markets are still looking towards buying the pound. Of course, it would be nice to wait for the next COT report, which will show how the mood of major players has changed after the Fed meeting. However, it will be released only this Friday. Nevertheless, we believe that the pound can return to the area of $ 1.41 – $ 1.42 this week. We remind you that the formation of a global downward trend for the pound has also presumably been completed (in 2020). Therefore, it may continue to remain in an upward trend for the next few years.
The average volatility of the GBP/USD pair is currently 119 points per day. For the pound/dollar pair, this value is "high." On Thursday, June 24, we expect movement inside the channel, limited by the levels of 1.3851 and 1.4089. A reversal of the Heiken Ashi indicator downwards signals a possible new round of downward movement.
Nearest support levels:
S1 – 1.3916
S2 – 1.3855
S3 – 1.3794
Nearest resistance levels:
R1 – 1.3977
R2 – 1.4038
R3 – 1.4099
Trading recommendations:
The GBP/USD pair continues its upward correction on the 4-hour timeframe and even overcame the moving average line. Thus, today it is recommended to open new sell orders with targets of 1.3916 and 1.3855 if the price is fixed back below the moving average. Buy orders should be opened if the price remains above the moving average with targets of 1.4038 and 1.4099.
