GBP/USD. Results of the week. Pound happy to play with results of the Bank of England meeting and Friday's US reports

4-hour timeframe


The situation with the pound continues to surprise and amaze. We have already said many times that it is possible to explain the reasons for the euro's growth in the last ten months, but it is still necessary to think of the reason why the pound is rising. In fact, those global fundamental factors that we talked about in the euro/dollar article also work for the pound, but do not forget that the European economy lost 11% in the second quarter of 2020, the American - 31%. and the British - 20%. The pound should feel a little worse than the euro, against the dollar. But in practice, the pound continues to rise. Clumsy, unsightly, incomprehensible, difficult to predict, but still growth. The pound returned to 2.5-year highs and it has hardly done so fairly and reasonably. If you do not take Friday into account, when there were reasons for the dollar's fall (we will talk about this below), the pound rose out of the blue on Thursday (we will figure out why), and before that it was getting cheaper for three days, giving hope would be a small, short-term downward trend. But, as usual, these hopes were not destined to come true.

So, let's start with the British macroeconomic statistics, and without discussing it too long, we can say: all of it was ignored, as well as the European one. The package of British reports did not include such important ones as GDP or inflation. There were indexes of business activity in the service sector and production, and, in fact, everything. Therefore, there is nothing surprising at all. But the events of Thursday require more careful consideration and analysis. As we have said in our previous fundamental articles, the Bank of England did not make any important decisions at its first meeting in 2021. All the parameters of monetary policy remained unchanged. Moreover, none of the nine members of the monetary committee voted "in favor" of changing any parameter. Thus, there is unity in the opinions of the committee members, although, for example, previously Silvana Tenreyro openly supported the idea of negative rates. However, it doesn't seem like the time is right yet. And here lies the most important factor that traders overlook. A matter of time. Traders react to statements made by BoE Governor Andrew Bailey or other committee members in real time. And the comments that the BoE members make relate to the time that will come in a few months at least, and may not come at all. For example, Tenreyro said that she supports negative rates and so the pound fell. Bailey said that negative rates are too problematic and the pound has risen. However, none of them made a precise and clear statement that rates would not be lowered for the next six months or something like that. During the BoE meeting, there were theses that can be interpreted as you like. For example, they said that the central bank continues to study negative rates, and the UK banking system and other financial companies will need about six months to prepare for a possible downgrade. And at the same time, the central bank said that most companies are already quite well prepared, and the words about "six months" should not be considered as an inevitable future. That is, in fact, the BoE just poured water, without saying yes or no. But market participants felt that the central bank is not going to ease monetary policy in the coming months and rushed to buy the pound. And now remember, dear traders, when did the markets react to the statements of the central bank that it is not going to change monetary policy? They usually react to changes in monetary policy or to the announcement of these changes. In our case, the markets were happy that there might not be a rate cut.

Now consider the US macroeconomic statistics. The report on the ISM manufacturing PMI was published on Monday, which slightly fell, but at the same time, it remained at a very high value of 58.7. The report on business activity in the ISM manufacturing sector was published on Wednesday, which increased compared with December, and also reached 58.7. Thus, business activity in the United States is in perfect order, which is not surprising, since the second lockdown was not even introduced in the country. Neutral data on applications for unemployment benefits were published on Thursday, the number of which reached 779,000. The number of secondary applications decreased from 4.785 million to 4.592 million. But the most interesting data was published on Friday. To begin with, the official unemployment rate unexpectedly fell from 6.7% to 6.3%. However, the disappointing news went further. The main report of the week-NonFarm Payrolls - which shows the number of new jobs created outside the agricultural sector, was only 49,000 with a forecast of +85,000. In fact, this is not such a big deviation from the forecast. It is clear that the actual value is worse, but not by much. For example, a value of -227,000 was recorded a month earlier. The Nonfarm indicator has been declining since June, and only increased in January compared to the previous month. So, in fact, not everything is so bad. The report on wages also turned out to be worse than the forecast values. It was predicted +1.0% m/ m, it turned out +0.2% m/m. However, this report was the least important of all.

What do we have in the end? The pound and the euro had every right to rise on Friday. And this is almost the only case in recent times when the markets still worked out the statistics. The same Nonfarm Payrolls report has been mercilessly ignored in recent months. If in the case of the euro, the single currency's growth fits into the overall technical picture, then in the pound's case, the growth does not fit into any picture, it's just there.

Thus, the pound/dollar pair has returned to its highs, both local and 2.5-year, so now the question arises, whether the bulls will be able to overcome the 1.3745 level. If so, the upward movement is highly likely to continue. If not, a new round of downward movement within the framework of the remaining "swing".

Recommendations for GBP/USD:

For long positions:

On the 4-hour timeframe, the GBP/USD pair is trying to resume the upward trend. Thus, the targets for long positions are now the levels of 1.3768 and 1.3837, but this means that the price should surpass the 1.3745 level, which is a local high, and from which the price rebounded at least five times.

For short positions:

You can open short positions in small lots while aiming for the support level of 1.3619 (according to the Ichimoku system), if the price rebounds from the 1.3745 level. However, take note that in any case, the pair is still moving erratically, which means that opening any positions is associated with increased risks.

The material has been provided by InstaForex Company -