The GBP/USD currency pair on Tuesday also began to adjust against the growth of the last 2-3 weeks. We have already said that the main reason for the growth of the British currency is technical. The pound, as well as the euro, has been falling for too long, and simply had to adjust. This correction may be followed by a new collapse of the pound and the euro. We still refuse to believe in such a scenario, since, for example, the euro is already very close to its 20-year lows. Nevertheless, it is worth noting that the dollar still looks much more confident and attractive to traders than the pound or the euro. The whole problem is that Europe depends on Russia and Ukraine much more than the States that are located overseas. Naturally, Europe (and the UK as well) has developed much more ties with Russia than the United States. Consequently, for them, the rupture of these very ties will be much more painful than for the United States and its economy. That's what we're seeing right now.
Although US GDP shrank by 1.5% in the first quarter, no one in America is sounding the alarm about this. The members of the Fed monetary committee continue to talk about two increases of 0.5% at the next meetings, respectively, they are not afraid of a recession. The states very easily and simply refused to import oil and gas from the Russian Federation, because the volumes they received were very small and it is very easy to replace them with oil from other countries or their shale. For Britain, the rejection of Russian hydrocarbons was also almost painless, since Britain has countries at its side that produce oil in the North Sea, and they are ready to supply the necessary volumes to Britain. In addition, Boris Johnson has already stated that his country is heading for nuclear energy and will build 10 nuclear power plants in order not to depend on countries aggressively acting on the world stage in this matter. However, the problem with food, the problem of inflation, or the problem of rising prices for everything - cannot be solved as quickly and easily. We see that inflation in the UK has already grown stronger than in the States, and no one understands how to repay it. The Bank of England has no influence on external factors and London's foreign policy. And besides that, there is also the "Northern Ireland Protocol".
Theoretically, the pound can resume a downward trend.
Recall that the main problem on the island of Ireland is the exit of Northern Ireland from the EU together with the UK, and the fact that Ireland remained in the Alliance. It turns out that a border should appear between the two powers on the same island. But it is the absence of this border that has maintained calm in the region since 1998, after the signing of the Belfast Treaty. To put it very bluntly, one community in Northern Ireland (nationalists) stands for rapprochement with Ireland and the European Union, and the second (unionists) stands for close ties with the UK. It turns out that the country is torn into two parts. It should be understood that if two peoples have been living on the same island for centuries, they may well be considered "fraternal" and, naturally, a certain part of the Northern Irishmen does not want a physical border with customs and inspections to appear between the two countries. London and Brussels tried to solve this problem by moving the border actually into the sea. But in fact, they only changed the awl for soap, because there is still a border, but there can be no other way. Now London insists on revising the "protocol", as it is afraid of riots in Northern Ireland, which already arise from time to time. But what can London do? Move the border to the Atlantic Ocean? The fact of the matter is that the situation is deadlocked, and London, it seems, for the sake of calm in the region, is even ready to unleash a trade war with the EU and violate the Brexit agreement, which will completely cancel it. Needless to say, this promises new problems for the British economy and, consequently, for the pound sterling?
The average volatility of the GBP/USD pair over the last 5 trading days is 73 points. For the pound/dollar pair, this value is "average". On Wednesday, June 1, thus, we expect movement inside the channel, limited by the levels of 1.2538 and 1.2684. The upward reversal of the Heiken Ashi indicator signals the resumption of the upward movement.
Nearest support levels:
S1 – 1.2573
S2 – 1.2512
S3 – 1.2451
Nearest resistance levels:
R1 – 1.2634
R2 – 1.2695
R3 – 1.2756
Trading recommendations:
The GBP/USD pair continues to form a new upward trend in the 4-hour timeframe. Thus, at this time, you should stay in open buy orders with targets of 1.2684 and 1.2695 until the Heiken Ashi indicator turns down. It will be possible to consider short positions if the price is fixed below the moving average line with targets of 1.2512 and 1.2451.Explanations of the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
