There was no sign of trouble for the pound yesterday. Even the labor market data, which put investors in a state of bewilderment, actually contributed to marking its spot. US data clearly did not belong to the category that can have a noticeable impact on the mood of market participants. But the problems came quite suddenly. It turns out that the British real estate market, which grew at a fairly impressive pace in previous years, is heavily inflated with loans, which is problematic in the current conditions. The coronavirus epidemic and containment measures for its dissemination have already begun to affect the ability of borrowers to meet their obligations on mortgage loans. Such a situation can trigger exactly the same mechanisms that once caused the crisis in the UK back in 2008. A number of British banks said that mortgage loans are becoming problematic for them, which means their financial stability can be seriously shaken. The financial problems of banks will automatically spread to other sectors of the economy. And this is why the pound fell yesterday.
At the same time, pulling down the pound using US data is clearly not going to work, since it was published after this very process began. Moreover, a decrease of 8.5% in sales in the secondary housing market is unlikely to contribute to the dollar's growth.
Secondary Home Sales (United States):
Perhaps the only news that matters today is British inflation, which should slow down from 1.7% to 1.3%. The very fact of a further and rather rapid decline in inflation can please a few people. The pound clearly has no reason to grow from a macroeconomic point of view. The story with mortgages will also put a lot of pressure on the pound. This topic will obviously not disappear from the agenda and, most likely, will only grow. So in general, the pound looks extremely weak.
Inflation (UK):
In terms of technical analysis, an increase in activity is recorded, during which the pound sterling loses its position and goes down to the level of 1.2246, where a local slowdown has formed. In fact, we returned to the limits of April 7, and this is about 80% of the previous cycle.
Considering the trading chart in general terms, the daily period, we see movement from the level of 1.2620, which has grown from an imperceptible pullback to an inertial move.
It can be assumed that the existing retreat/stagnation of 1.2250/1.2305 is temporary in nature, where a new round of acceleration is not ruled out. So, in case you consolidate prices below 1.2240, it will open the way to the main support point of 1.2150, relative to which it will be clear whether we can continue the downward development in terms of recovery.
We specify all of the above into trading signals:
- We consider short positions lower than 1.2240, with the prospect of a move to 1.2150-1.2160.
- We consider long positions in terms of a local burst of activity from a value of 1.2310 to 1.2350.
From the point of view of a comprehensive indicator analysis, we see that the sell signal is preserved relative to hourly and daily periods.
