Overview of the GBP/USD pair. February 5. The Bank of England left all the parameters of monetary policy unchanged.

4-hour timeframe

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Technical details:

Higher linear regression channel: direction - upward.

Lower linear regression channel: direction - upward.

Moving average (20; smoothed) - sideways.

CCI: -44.6935

The British pound continues to trade in a swing mode. As soon as the pound/dollar pair broke the lower limit of the side channel of 1.3620-1.3745, which gave hope for the formation of a new downward trend, the Bank of England meeting happened and market participants found new reasons to buy the pound. At the same time, the national currency usually grows when its bank takes or announces some "hawkish" decisions regarding monetary policy. In our case, the Bank of England did not make any "hawkish" decisions and announcements. It did nothing at all at the end of its first meeting in the new year. Thus, it is difficult to understand at all, however, what did the markets react to with such optimism? But first things first. Let's start with the "technique". After the pair's quotes fell for several days, now, it is very likely that the growth has resumed. The price rose to the moving average line and, if it manages to overcome it, it can return to its 2.5-year highs. The further upward movement is still questionable. At the same time, the price may rebound from the moving average, which may provoke a new round of downward movement. In any case, trading on the pound/dollar pair remains unstable. Thus, it is recommended to trade with increased caution.

Back to the Bank of England meeting and its results. The key rate remained unchanged – at 0.1%, and the volume of asset purchases on the open market - at 895 billion pounds. The central bank said that at the end of the fourth quarter, the UK economy "grew slightly" (although all forecasts for the yet-to-be-officially-released fourth-quarter GDP figure favor a 2% decline). In annual terms, according to BA, the economy declined by 8%, and at the end of 2020 lost 10%, which is much better than expected at the meeting in November. According to the new forecasts of the regulator, in the first quarter of 2021, the British economy will continue to shrink and will lose about 4%. For the whole of 2021, the British Central Bank forecasts growth of 5%, instead of the previous +7.5%. The final communique states that "GDP can very quickly recover to pre-crisis levels thanks to mass vaccination, easing quarantine measures and reducing people's concerns about their health." The central bank expects that this spring the inflation rate will rise sharply and will reach the target of 2%. The Bank of England also lowered its forecast for unemployment for the current year – 6.25%. However, "economic forecasts remain extremely uncertain and depend on the development of the pandemic and health measures and how households, businesses, and financial markets respond to these measures." It is also reported that the regulator will continue to closely monitor the situation and will be ready to intervene at any time, if necessary. Also attached to the final communique was a letter from the Deputy Chairman of the Bank of England, Sam Woods, which states that most financial institutions have already adapted to possible negative rates. According to Woods, "negative rates are no longer as intimidating as they used to be." Based on the survey, Woods concludes that most organizations can adjust to negative rates within six months. But at the same time, the communique says, these words do not mean that negative rates are inevitable. "All monetary policy decisions are made by the relevant committee and will, as always, be based on the goal of achieving 2% inflation," the summary says.

Thus, the representatives of the Bank of England did not report anything extraordinary to the markets. The fact that negative rates are considered as a possible tool to stimulate the economy was known six months ago. The fact that the regulator is not going to lower the rate right now was also clear. None of the members of the monetary committee voted "for" a rate cut at the February meeting. Still, the pound jumped 120 points after the results were announced. We believe that this is a simple market nervousness. The pound had no reason to show an upward movement yesterday. The reason "we will not lower the rate yet" is not a reason to buy the pound. The Bank of England itself has said that rates may be lowered, but no one knows for sure. That is, maybe yes, and maybe no. Thus, the first meeting of the British regulator can be safely called "passing". And it certainly did not help traders figure out what to expect from the pound in the coming weeks. Consequently, the technical picture remains the same. And if the euro/dollar pair at least has clear fundamental factors that traders rely on when making trading decisions, then why the pound remains near its 2.5-year highs and cannot roll back down even by 200-300 points remains a mystery.

Based on all of the above, we believe that the pair will continue to remain in the "swing" mode. Macroeconomic factors are ignored by traders of the British pound, the fundamental factors are worked out incomprehensibly. The fact that the British economy has shrunk for two consecutive quarters is not perceived by traders at all. Therefore, it remains only to trade either on the smallest timeframes, or not to trade at all, since the current movements cannot be predicted. In general, the pair remains inside the upward trend and, accordingly, can update the local highs almost at any time. Both linear regression channels continue to be directed upwards. The CCI indicator "pricked" the oversold area, which may mean that it is ready for a new round of upward movement.

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The average volatility of the GBP/USD pair is currently 99 points per day. For the pound/dollar pair, this value is "average". On Friday, February 5, thus, we expect movement within the channel, limited by the levels of 1.3558 and 1.3756. A reversal of the Heiken Ashi indicator to the top will signal a new round of upward movement within the "swing".

Nearest support levels:

S1 – 1.3641

S2 – 1.3611

S3 – 1.3580

Nearest resistance levels:

R1 – 1.3672

R2 – 1.3702

R3 – 1.3733

Trading Recommendations:

The GBP/USD pair on the 4-hour timeframe began a new round of upward movement within the framework of the continuing "swing". Thus, today it is recommended to trade for an increase with a target of 1.3750 if the price again fixes above the moving average. It is recommended to consider sell orders with a target of 1.3580 if the price bounces off the moving average.

The material has been provided by InstaForex Company - www.instaforex.com

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