GBP/USD. Preview of the new week. UK inflation is the most important report of the week.


The British pound continues its carefree growth and does not take into account most of the factors that should have long ago contributed to the beginning of at least a downward correction. This week, the pound/dollar pair has increased by another 150 points. The most important thing is that the almost recoilless upward trend persists. And this is the main conclusion that we can make after analyzing all the factors. The British economy, which continues to experience difficult times, is slowly beginning to recover from the crisis. This is evidenced at least by the positive GDP in the fourth quarter. Although the increase was small, it is still better than the next reduction that traders were waiting for. However, if GDP grew slightly in the fourth quarter, then this value is not final and other macroeconomic indicators leave much to be desired. For example, the unemployment rate or the index of business activity in the service sector. Thus, we can only draw the same conclusion as for the euro currency. The main factor in the growth of the British currency remains the huge amount of trillions of dollars poured into the American economy using the "turn on the printing press" method. We don't see any other reasons. But even in this scenario, it is hardly possible to conclude the logic of the current increase in the pair's quotes. Recall that the upward movement is almost recoilless. And this is always strange and resembles the growth of bitcoin or oil, that is, in other words, speculative growth. When a currency or instrument grows, it is not because there are specific reasons, but because more and more traders want to join the "easy trend" and make "easy money" from it. And the most interesting thing is that there is nothing else to do. The trend is strong, why trade against it now? But it is precisely this logic that leads to even more unjustified growth of the British currency.

No major reports will be published in either the US or the UK until Wednesday next week. Only on the third trading day of the week, the consumer price index in Britain will be published, and in the United States – changes in retail trade, changes in industrial production, and the minutes of the Fed from the last meeting. British inflation is interesting. In December, its value was 0.6% y/y, but now experts expect it to slow down to 0.4%-0.5% in annual terms. Core inflation may fall from 1.4% y/y to 1.2%-1.3% y/y. Thus, this report may become the next in a series of weak ones from the Kingdom. In the United States, retail sales may grow by 1% in January and industrial production – by 0.5%. In principle, if these figures come true, it will be very good. Unfortunately, we still do not expect that the statistics will be worked out by the markets. Therefore, the maximum that can be done with it is to check the box and conclude that the British economy continues to stall, as well as the European one. On Thursday, the standard report on applications for unemployment benefits in the US will be published, and on Friday – retail sales in the UK and business activity indices in both countries of interest to the pound/dollar pair. We are most interested in the report on British business activity in the service sector. It has been experiencing big problems in recent months due to winter "lockdowns". Thus, it is the service sector that is most hindering the economic recovery. If the business activity index starts to grow from the current 39.5, it will be a step in the right direction. However, the pound is still growing now, so it simply does not need the help of macroeconomics.

Based on all of the above, it follows that the not quite logical upward movement is likely to continue next week. The latest COT report showed a strengthening of the "bullish" mood. The factors that supposedly led the pound to the current peaks have not gone away. From a technical point of view, the upward trend is also maintained and there are not even minimal hints of a correction. Thus, recently, nothing has changed at all to wait for a change in the trend. We're only worried about one thing. The current growth of the British currency is indeed very similar to the "speculative" growth. For example, the euro currency, which is affected by the same "American factors" is adjusted from time to time. Thus, the pound may continue to grow, but sooner or later there will be a massive closure of profitable long positions, as speculators will want to exit the market. Thus, a rather strong and sharp fall can begin, which is important not to oversleep. Therefore, traders are advised to continue to trade for an increase, as the upward trend persists. What is the point of trading against the trend? However, it is also recommended to remember that the upward trend may end and be prepared for this. At the same time, it is unlikely that this completion will coincide with some fundamental event, such as a speech by the head of the central bank or a meeting of this very central bank.


Recommendations for the GBP/USD pair:

The pound/dollar pair continues to trade near its 2.5-year highs, regularly updating them. The "swing" on the 4-hour timeframe seems to have stopped and now there is fairly strong growth in the pair. On Friday, traders tried to start a downward correction, however, it ended very quickly, near the Kijun-sen line. Thus, the markets failed to consolidate the pair below this line, therefore, the upward trend should be continued with the targets of 1.3876 and 1.3996. So far, we see the $ 1.40 level as the boundary target point.

The material has been provided by InstaForex Company -