The pound is between a rock and a hard place. On the one hand, key macroeconomic indicators are in the green zone, reflecting the recovery of the British economy, on the other hand, the authorities are in no hurry to ease quarantine restrictions, despite the ongoing mass vaccination of the population. Moreover, British Prime Minister Boris Johnson scared the markets with the news of another coronavirus mutation. According to him, at the moment there is a risk of a new strain, against which the developed vaccines will be powerless. This turn of the story put pressure on the GBP/USD pair, although such assumptions were voiced exclusively in a hypothetical context.
Abstracting from intraday price fluctuations, we can say that in general, the pound retains the potential for further growth. The coronavirus factor serves as a burdensome anchor, but nevertheless, the GBP/USD pair is in an upward trend. At the end of last week, traders were able to approach the resistance level of 1.3750 (the upper line of the Bollinger Bands indicator on the daily chart), but could not test this target. Against the background of another surge of interest in the US currency, buyers of GBP/USD were forced to retreat by almost 100 points – to the support level of 1.3630 (the Tenkan-sen line on D1). The downward momentum was also quickly "eroded": the bears lost control of the pair at the end of the trading session on Friday.
Today, neither the bears nor the bulls of GBP/USD can also determine the vector of price movement. Buyers took the initiative in the first half of Monday afternoon: the pair entered the area of the 37th figure. However, in the afternoon, all the gains were lost after a pessimistic speech by Boris Johnson. As a result, the total score for today is 0:0. Investors are clearly undecided and can not decide on the direction of further price movement.
In my opinion, the pound-dollar pair will continue to gain momentum. Slowly, with deep corrective pullbacks, but the price will still creep up, opening new price horizons for itself. The pound looks quite attractive against the background of the dollar's weak positions, especially after the release of quite good data on inflation growth in the UK. Let me remind you that, according to the latest release, the general consumer price index in monthly terms left the negative zone and reached 0.3%, while on an annualized basis the indicator will accelerate to 0.6% (from the previous value of 0.3%). Core inflation rose to 1.4%. The producer price index also came out of the negative area: an increase was recorded to the level of 0.6% m/m after a decline to -0.3%. Other components of the release showed similar dynamics, in particular, the producer purchase price index and the selling price index.
The pound will have to go through another kind of test on Tuesday: key data on the growth of the British labor market will be published. It is worth noting here that the preliminary forecasts are not unambiguously negative. For example, the unemployment rate should rise to 5.1% (from the current value of 4.9%), but the increase in the number of applications for unemployment benefits should show a downward trend. The fact is that tomorrow the unemployment rate for November will be published. In turn, the increase in the number of applications for benefits will reflect the December situation. While the nationwide lockdown was in effect in the UK between November 5 and December 2. By the way, the number of applications for benefits in November increased by 64,000 at once (the forecast for December is +35,000).
Also, traders need to pay attention to the salary component of the release. The average earnings indicator has been growing at a rapid pace for several consecutive months. For example, taking into account bonuses and bonus payments, this indicator is growing for the third straight month (rising from 0.1% to the current level of 2.7%). Excluding premiums, the indicator showed a stronger trend: it has been growing for five months, jumping from -0.2% to +2.8% during this period. In other words, tomorrow's release is likely to report that the UK labor market, on the one hand, is experiencing the consequences of the next wave of the COVID-19 epidemic – but on the other hand, the "coronavirus strain" was not as strong and destructive as analysts previously expected.
If such forecasts are justified, the pound will get another reason to grow further. And do not forget that this will be released on the eve of the first meeting of the Bank of England this year (which will be held on February 4). At the previous meeting, BoE Governor Andrew Bailey stressed that the issue of introducing a negative rate is still "under study". Last summer, the central bank organized a large-scale study, in which the country's financial institutions had to express their opinion on reducing the rate to zero or below zero. It is expected that at the February meeting, the British central bank will present the results of its research and announce a general verdict on the prospects for reducing the rate in the negative area – including taking into account the dynamics of key macroeconomic indicators. Therefore, if tomorrow's release does not turn out to be weak, then buyers of GBP/USD will receive support, including in the context of further prospects for monetary policy.
The coronavirus factor will certainly serve as a kind of counterweight in this situation, preventing the pound from impulsively breaking through technical price barriers. But judging by the dynamics of GBP/USD, we can conclude that Covid news has a limited impact on the pair. The overall trend for the pair remains north, despite quarantine restrictions in Britain and Boris Johnson's pessimism.
Technically, the pair is between the middle and upper lines of the Bollinger Bands indicator on the daily chart, as well as above all the lines of the Ichimoku indicator, including above the Kumo cloud. This indicates the priority of the growth movement. It is important for buyers to keep the price above 1.3600 - this is the support level, upon overcoming which the growth scenario will temporarily lose its relevance (here you can place a stop loss). The target for the upward movement is 1.3750 - this is the upper line of the Bollinger Bands on the same timeframe.