It is not strange, but the pound's behavior indicates that the market is trying to return to normality and behave appropriately to reality. In general, this is not surprising, since markets cannot remain in chaos for a long time. Sooner or later, panic moods give way to the realization that you can run as much as you like, but you also need to earn money. But panic in the markets is nothing more than an escape from risk. And the flight to nowhere. That is, of course, they saved the money, but what's next. Money cannot just lie. They should work. Surprisingly, return on investment is possible only in conditions of stability in the market, as well as the growth of stock indices. And for this it is necessary that markets adequately respond to what is happening around.
So, the pound has been growing since yesterday. More precisely, it continued to grow. It did not even bother when it saw a fall in UK inflation from 1.8% to 1.7%. Here the trick is that they predicted a decrease in inflation to 1.5%, and it was precisely this development of events that was laid. But it turned out that inflation slowed down much more significantly. And in the current situation, this is quite an objective reason for the growth of the pound. Indeed, it fell so much over the previous week that it still remains seriously oversold.
Inflation (UK):
The dollar grew at the beginning of the US session. Here again, everything is quite logical, since US macroeconomic statistics turned out to be not only better than forecasts, but significantly better. In particular, the volume of orders for durable goods did not decrease by 0.7%, but grew by 1.2%. At the same time, the previous results were revised from -0.2% to 0.1%. The difference is huge. After all, it turns out that the volume of orders has been growing for the third month in a row. In addition to this, housing prices rose 0.3%, instead of the projected 0.2%. Thus, there is a significant increase in orders in the United States, and a moderate increase in housing prices. Another thing is that the dollar's growth was not so significant, and did not overlap the pound's previous growth. This is due to the continued oversold pound.
Durable Goods Orders (United States):
Since the opening of the European session, we may see a kind of repeat of yesterday, as the growth rate of retail sales in the UK should accelerate from 0.8% to 0.9%. Another thing is that this data is for February, not March, when the United Kingdom began to introduce emergency measures to counter the spread of the coronavirus. So the reaction will be moderate in many respects. However, the pound should resume growth.
Retail sales (UK):
But the market can literally go crazy as soon as the US session opens, and even earlier than that. The fact is that the number of initial applications for unemployment benefits should grow from 281 thousand to 1,090 thousand.This is just some fantastic growth. This has never happened before. Perhaps this is only for the simple reason that instead of transferring their employees to work from home, or sending them on vacation, US employers simply dismissed people. We are talking about small businesses, of course. That is, there is a prospect that the labor market will simply collapse. And against this background, the growth in the number of repeated applications for unemployment benefits, from 1,701 thousand to 1,820 thousand, looks somehow frivolous. It is unlikely that this data can even raise the negative reaction. No one will pay any attention to them at all.
Number of initial applications for unemployment benefits (United States):
In terms of technical analysis, we see a local convergence with the psychological level of 1.2000, where the quote felt immense pressure, and as a fact turned around, forming a rebound towards the level of 1.1660. In fact, this phenomenon in itself was temporary, since with the arrival of Americans on the market, the picture changed, returning the quote to 1.1850, that is, the recovery is more than half.
Looking at the trading chart in general terms, we see a corrective movement from record lows, where the quote locally managed to return to the area before the pound's collapse.
We can assume that we are currently waiting for turbulence within 1.1815/1.1915, where if the price is consolidated higher than 1.1915, another attempt to build an upward move towards 1.2000 is not excluded.
Concretizing all of the above into trading signals:
- We consider long positions if the price is consolidated above 1.1915, where the first consolidation point is located at the previous day's high of 1.1972. The next move will depend on how fast the price will be able to overcome the 1.1972 mark , since the main prospect is in 1.2000/1.2050.
- Short positions, we consider as alternative positions in case of price taking below 1.1815, with the prospect of a move to 1.1775.
