4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -20.1926
On Tuesday, May 25, the British pound also aimed to update its three-year highs. However, it could not overcome the level of 1.4221 on the third attempt, from which only 20 points remained at the highs. However, we still believe that sooner or later, the highs will be updated, as most of the global factors are now in favor of this. The European currency also traded in an 80-point side channel for five trading days before resuming its upward movement and updating its previous local highs. So for the pound, it seems only a matter of time. There are specific concerns about the fact that the pound may fall in the near future. In favor of this, as we said at the weekend, a purely technical factor works. In the 4-hour timeframe, it is now evident how the upward trend is weakening.
Just a month and a half ago, we saw the same thing for bitcoin, which we repeatedly warned traders about, after which bitcoin collapsed down by 56%. The pound, like bitcoin, has also been growing for a very long time. Of course, the same global factor that works in favor of the European currency continues to work in its favor. However, we also recall that the situation in the European Union is not as bad as in the UK. At the same time, it should consider the entire last year, when both the euro and the pound sterling grew. It should also be remembered that the prospects for the British economy are much less welcoming than in the same EU. In general, of the two European currencies, if anyone has a better chance of a collapse, it is the pound. However, we may be wrong with this hypothesis. However, the technical picture is very eloquent at this time, so just in case, we warn you that this option is possible. But if you look only at the fundamental global factors, and the pound has even more of them than the euro, it turns out that the British currency will continue to rise in price until the printing press is turned off in the United States. The pound also has a "speculative factor" that also helps it move up. As in the case of the euro currency, the whole simple fundamental background does not play a unique role now. It can only cause intraday movements, and even then, not too strong. For example, yesterday, there was a hearing of the report on monetary policy in the UK Parliament, where Andrew Bailey spoke and what? Andrew Bailey did not say anything new. All his statements were highly insipid. In general, traders did not even consider it necessary to work out this information.
As for the Bank of England's rhetoric, it is simply striking in its instability over the past year. Last year, there were rumors that the British regulator would lower the key rate in the negative area. The rumors had been going around for quite a long time and were regularly backed up by the BA members themselves. Andrew Bailey has said several times that the Bank of England's economists are studying the possibility of applying a negative rate, studying the experience of those central banks that have already used this approach. Then the head of the BA stated that the UK banking system would need about six months to prepare for a rate cut below zero. Then, Silvana Tenreyro, a member of the BA monetary committee, was noted for similar rhetoric. A few months passed, and the talk of a negative rate stopped. Many felt that the bank continues to prepare its system for a negative rate or continues to study this issue. However, no other representative of BA spoke about any negative rates. Although, for example, in the first quarter there was again a "minus" of GDP. However, the British economy has only just begun to recover thanks to a really strong vaccination company in the Foggy Albion. Thus, this tool "for the most extreme case" was never implemented. But in recent weeks, the markets have already begun to discuss raising the key rate, which is generally absurd.
Just a couple of months ago, BA was thinking hard about lowering the rate. When the Kingdom's economy has just begun to recover from a year-long crisis, everyone is already talking about an increase? Is UK inflation high? Only 1.5%. In the States - 4.2%. Can it accelerate much faster? It is unlikely if Andrew Bailey himself has already twice stated that inflation will not jump above 2.5%, and even then, it will be able to reach this level no earlier than the end of 2021. After that, a pullback will follow, and in the best case, the consumer price index will stabilize around the target 2%. \In general, the British economy is unlikely to show an ultra-high recovery rate after the crisis. Simply because it does not pour trillions of dollars into it, as in the United States, and thousands of dollars are not dropped on the British from a helicopter, as on the Americans. Thus, an explosive second quarter is likely to be followed by a much more modest third and fourth. Therefore, there will be no reason to raise the rate, in principle, even if the economy continues to recover on the planned path. Recall that the rate has been at 0.5% in the UK since 2009, except for just a couple of years, when it was lowered to 0.25%, then raised to 0.75%. And now, when the whole world has not really moved away from the crisis, and the UK itself will be moving away from Brexit for a long time, the Bank of England will not raise the rate in the coming years. Or a purely symbolic increase of 0.25% will follow, and even then, it is unlikely.
The average volatility of the GBP/USD pair is currently 82 points per day. For the pound/dollar pair, this value is "average." On Wednesday, May 26, we expect movement within the channel, limited by the levels of 1.4075 and 1.4239. A reversal of the Heiken Ashi indicator back upward may signal a new round of upward movement.
Nearest support levels:
S1 – 1.4130
S2 – 1.4099
S3 – 1.4069
Nearest resistance levels:
R1 – 1.4160
R2 – 1.4191
R3 – 1.4221
Trading recommendations:
The GBP/USD pair has started a new round of corrective movement on the 4-hour timeframe. Thus, today it is recommended to open new buy orders with the targets of 1.4221 and 1.4239 after the reversal of the Heiken Ashi indicator to the top. Sell orders should be opened if the pair's quotes are fixed below the moving average with targets of 1.4075 and 1.4069.