4-hour timeframe
Amplitude of the last 5 days (high-low): 52p - 89p - 118p - 54p - 118p.
Average volatility over the past 5 days: 87p (average).
The British pound showed a fairly strong upward movement on Thursday, January 30, rising against the US dollar by almost 120 points, if you count from the lows of the day. This upward movement was provoked exclusively by the Bank of England's decision not to lower the key rate. However, even this factor was not the main one. Many experts, analysts and traders expected, if not monetary easing, then at least an increase in the number of members of the monetary committee who support the rate cut. However, a surprise awaited market participants here as well. The number of committee members who voted in favor of cutting the key rate remained the same - two. This is again Michael Saunders and Jonathan Haskel. The central bank also quite predictably did not change the parameters of the government bond repurchase program - 435 billion pounds per month, as well as corporate bonds - ten billion pounds a month. Moreover, the BoE in its communique even allowed the key rate to be raised in the near future, saying that "business begins to recover, according to polls, after the Conservative Party won the election in December, and in the future it may even require a moderate tightening of monetary policy." Of course, this "in the future" will most likely come soon. We do not believe that the UK economy has truly embarked on a recovery path. So far, we are talking only about a few good macroeconomic reports on Great Britain. Therefore, not a rate cut and the lack of hints of the regulator to lower it in the near future can already be considered positive news for the British currency. Moreover, for Mark Carney, the current meeting was his last at the head of the British central bank. On March 16, Carney will be replaced by the current head of the Financial Market Compliance Department, Andrew Bailey. Many believed that Carney would follow the example of her colleague Mario Draghi from the ECB and would also "slam the door" in the end, but this did not happen. The Bank of England also published forecasts for GDP for 2020 - moderate growth at 0.8%, and also for 2021 - growth at 1.5%. Inflation, according to the expectations of the British regulator, will remain at "below 2%" over the next three years at a key rate of 0.75%. If the rate is reduced to 0.5% (it turns out that BA still allows this possibility), then inflation is expected to be "slightly above 2%".
Now tomorrow we are waiting for the most high-profile event of recent years - the UK's official exit from the EU, which cannot yet be called complete, as the country will simply go into a "transition period", which will last 11 months. Moreover, during this period the country will enjoy all the EU membership preferences. That is, nothing will change for the British economy. Changes should be expected only in 2021, when Brexit will be completed and everything will depend on whether Boris Johnson manages to sign a trade deal with Brussels or whether from January 1, 2021 all British exports to the European Union will be taxed. Naturally, such terms of trade with the EU will hit the UK economy even harder. Even without Brexit, the economy has been losing about 70 billion a year since the 2016 referendum. Earlier it was estimated that for several decades in the European Union, London paid about the same amount to the EU treasury as it lost in three years due to Brexit (which has not even been completed and, in fact, has not even begun).
Thus, at the moment, quotes of the British pound soared, but very soon the euphoria may come to naught, as in fact nothing positive has happened. BA just didn't lower rates, that's all. Yes, traders were delighted with this information and the lack of hints of a lower rate in the near future. However, what does this change for the British economy compared to the central bank's previous meeting? Nothing. Therefore, it is possible for the pair to return to their original positions in the coming days, at which they were before the publication of the results of the BA meeting.
Trading recommendations:
GBP/USD is trying to start an upward trend. Thus, formally, the purchase of the British pound with a target resistance level of 1.3176 is now relevant. However, after such a strong movement as it is today, firstly, a downward correction may begin, and secondly, markets should calm down and enter into the usual trading mode. The pair's sales can again be considered if the price returns to the area below the Kijun-sen line with targets at 1.2963 and 1.2944.
Explanation of the illustration:
Ichimoku indicator:
Tenkan-sen is the red line.
Kijun-sen is the blue line.
Senkou Span A - light brown dotted line.
Senkou Span B - light purple dashed line.
Chikou Span - green line.
Bollinger Bands Indicator:
3 yellow lines.
MACD indicator:
Red line and bar graph with white bars in the indicators window.
Support / Resistance Classic Levels:
Red and gray dashed lines with price symbols.
Pivot Level:
Yellow solid line.
Volatility Support / Resistance Levels:
Gray dotted lines without price designations.
Possible price movements:
Red and green arrows.
The material has been provided by InstaForex Company - www.instaforex.com