4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 5.7087
The British pound, paired with the US dollar, continued to trade very calmly on Wednesday. When the results of the regulator's meeting became known, there was a surge of emotions, resulting from which the quotes fell by 70 points. However, this movement cannot even be called meaningful since it may simply be a "nervous reaction of the market" to such an important event as a regulator meeting. In the article on the euro/dollar, we already said that neither the ECB nor the Fed made any important decisions. The Bank of England also did not retreat from the path of a very cautious tightening of monetary policy. Thus, the reaction to the meeting results turned out to be very restrained, as it should be when the regulator does not change anything at all. The fall of quotes by 70 points down for the pound is an ordinary boring Monday. The normal volatility for the pair is considered to be more than 100 points per day. Thus, these 70 points of decline can be quickly won back by the markets today. In general, we continue to expect the pair to grow, that is, the fall of the US currency. Almost all global fundamental and technical factors speak in favor of this.
Let's return to the meeting of the Bank of England and consider in more detail what decisions the British regulator made. The key rate remained unchanged at 0.1%. The volume of asset repurchases remained unchanged at the level of 895 billion pounds. The Bank of England noted that the target inflation, which rose to 2.1% in May, may grow to 3% in the future. However, earlier, Andrew Bailey said that it is unlikely that the consumer price index will accelerate more than 2.5%. However, the regulator also stated that the acceleration of inflation is temporary and is caused by factors that will be leveled over time. The Bank of England expects that by the end of the year, inflation will be 2%. The final communique also said that the Bank of England slightly underestimated the pace of global economic recovery, which turned out to be slightly higher. The GDP forecast for the next quarter has increased somewhat. However, the overall GDP indicators remain much lower than the pre-pandemic ones. The regulator expects that the economy will undergo a period of sharp growth and strong inflation in the near future. However, their growth will begin to slow down soon.
In addition, traders were closely watching another factor. The fact is that during the last meeting of the Bank of England in May, one member of the monetary committee (Andy Haldane) voted to reduce the quantitative stimulus program. Some traders and experts expected that this time the number of those in favor of curtailing the QE program would grow to at least 2-3. However, in reality, Andy Haldane remained the only one who voted for curtailing the incentive program. Thus, even from this source, it was not possible to get any "hawkish" signals. Therefore, traders had no reason to buy the British pound yesterday. However, how many times have we voiced this phrase over the past year?
It should be remembered that the British pound has been growing quite illogically over the past year. Of course, no one cancels the factor of flooding the American economy with trillions of dollars. However, if you look at the fundamental background from the UK, the questions arise, how did the pound manage to grow to its "pre-Brexit" levels at all? The British economy shrank significantly during the pandemic, experienced a shock after the completion of Brexit, and is currently only getting on the path of recovery. In addition, there are a huge number of political and geopolitical problems in the Foggy Albion. We remind you that London is now openly in conflict with the European Union regarding the "Northern Ireland Protocol," which it violates regularly. As far as we know, Brussels has not yet appealed to the courts on this issue.
However, London is already openly calling on Brussels to start negotiations on changing some provisions of the Brexit agreement, considering that the current ones have proved ineffective in practice. However, the European Union does not think so and reminds us that London is obliged to adhere to all the agreements already concluded. Otherwise, long legal proceedings may begin, and London may forget about new deals if it cannot comply with the implementation of the current ones. In addition, recently, everyone has somehow forgotten that Scotland has not at all accepted Boris Johnson's refusal to grant permission to hold an independence referendum. On the contrary, Nicola Sturgeon's party won the parliamentary elections while increasing its political influence. The First Minister of Scotland has already stated several times that Edinburgh will not give up on independence from London and that London will have to go to court if the independence referendum does take place. Edinburgh will follow the path of "we will first hold a referendum, and then you prove that it was illegal." It is quite difficult to say how all this will end now. But these are potentially new problems for the Kingdom. In addition, do not forget that Boris Johnson has recently "got into" several scandals at once. He had a lot of questions about the sources of funding for repairs to his apartment in Downing Street, as well as a holiday on a private island for Christmas. In addition, the former chief adviser to Johnson, Dominic Cummings, stunned the public a few weeks ago, "taking out several tons of garbage from the hut." He criticized the entire British government for its actions during the pandemic. He listed a huge number of blunders, mistakes, and cases of incompetence during a difficult period for the country. Thus, it seems that they are beginning to "dig" under Boris Johnson in the same way as they once "dug" under Donald Trump.
The average volatility of the GBP/USD pair is currently 116 points per day. For the pound/dollar pair, this value is "high." On Friday, June 25, we expect movement inside the channel, limited by the levels of 1.3801 and 1.4033. A reversal of the Heiken Ashi indicator back to the top will signal a possible new round of corrective 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 has fixed back below the moving average on the 4-hour timeframe and may resume its downward movement. Thus, today it is recommended to stay in sell orders with targets of 1.3855 and 1.3801 until the Heiken Ashi indicator turns up. Buy orders should be opened if the price is fixed above the moving average, with targets of 1.4033 and 1.4099.
The material has been provided by InstaForex Company - www.instaforex.com