The pound-dollar pair jumped towards the end of the trading week, rising to 1.3730. Buyers of GBP/USD actually returned all positions that were lost during the previous five days. It is noteworthy that the pair's growth was caused not only by the dollar's weakness, but also because the pound strengthened, which received support from the British central bank. Therefore, the pound had a double advantage on Friday, although the prospects for its succeeding growth are still very vague.
On Friday, the GBP/USD pair failed to approach the resistance level of 1.3770 - this is the upper line of the Bollinger Bands indicator on the daily chart. This target is a tough nut to crack: traders have tried to test it several times since January 20. But as soon as the price rose to the middle of the 37th figure, sellers entered the market and pulled the pound to the area of the 36th price level. However, as soon as the bears pulled down the price to the bottom of the 36th figure, the downward momentum also faded out rather quickly. As a result, the pair fluctuated in a wide price range of 1.3610-1.3750 for almost three weeks.
The Bank of England held its first meeting of 2021 on February 4. The central bank ruled out a rate cut in the negative area in the foreseeable future, but with one "but" - if the key macroeconomic indicators do not show a downward trend. First of all, we are talking about the indicators of inflation, the labor market and the economy as a whole.
As for inflation and the labor market, quite good results were reported. Now there is one more key test left. The fact is that data on UK GDP growth in the 4th quarter of last year will be published on Friday. If this release is also in the green zone, then the pound will rise against the dollar, opening the way to the 38th figure. Let me remind you that the British economy showed record growth in the third quarter, rising by 16% on a quarterly basis. In the summer, as well as in early autumn, the country got a little respite in a series of lockdowns. The quarantine was significantly relaxed, the economy revived, and macroeconomic indicators began to grow. Unfortunately, the situation changed for the worse again in the second half of autumn: in October, Britain was ranked ninth in the world in the number of cases of coronavirus and third among European countries. Prime Minister Boris Johnson was forced to tighten quarantine restrictions again.
Actually, for this reason, analysts do not expect anything extraordinary from the fourth quarter, Britain has actually been closed for quarantine since November (London extended the lockdown again on January 5). Nevertheless, according to general forecasts, GDP should remain above zero on a quarterly basis. Analysts expect 0.5% growth in the quarter from the previous period. If we talk about the December indicator, then a positive trend is also expected relative to the failed November (+1.0% in December against -2.6% in November). We will also learn the indicators of industrial production. Similarly, analysts plan to see signs of recovery (+0.5% vs. -0.1%).
In other words, most analysts are confident that the British economy has withstood another coronavirus blow that hit Great Britain at the end of last year. Analysts expect marginal growth. And the pound will be under significant pressure if the UK economy does not meet these expectations. At least, the path to the 38th figure for GBP/USD buyers will be closed again.
After all, by and large, the results of the Bank of England's February meeting can be interpreted in different ways. On the one hand, the central bank has ruled out the introduction of a negative rate in the near future. On the other hand, the central bank did not rule out such a scenario in principle. Moreover, the central bank will now work with the country's financial institutions to develop appropriate tactical solutions - "in order to prepare all authorized firms for the introduction of a negative rate regime" with a 6-month time gap.
This suggests that the BoE has left the door open for a negative rate, although it has acknowledged that this scenario is more critical than the main one. Everything will depend on the dynamics of the key macroeconomic indicators of Britain.
Given the current fundamental background, we can assume that before the release of data on the growth of the British economy (February 12), the pound will move in the wake of the dollar, but switch to its own fundamental factors.
In turn, the greenback ended the trading week with a significant decline, against the background of a disappointing Nonfarm payrolls report and optimism about the fate of the almost $2 trillion package of assistance to the US economy. The general risk appetite + weak data on the growth of the US labor market weakened the position of dollar bulls. And in my opinion, the market has not yet fully played out Friday's events.
The technical picture of GBP/USD also indicates the priority of long positions: the price on the daily chart is located between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator, including the Kumo cloud. All this suggests that you can consider long positions on the pair – with the first target as 1.3770 (the upper line of the Bollinger Bands on the same timeframe). Iit is better to close long positions in the area of the borders of the 38th figure, since there will be a separate struggle for this price barrier. The stop loss can be placed either at 1.3600 (Kijun-sen line on D1). If the price goes below the middle of the 36th figure, the growth scenario will lose its relevance, at least in the medium term.
The material has been provided by InstaForex Company - www.instaforex.com