GBP/USD. Pound "upset" due to prolongation of quarantine

The pound tested multi-day lows against the dollar today. Since May 14, that is, over the past four weeks, the GBP/USD pair has been trading within the range of 1.4100-1.4200, alternately starting from the boundaries of this price range and only occasionally leaving it. The downward momentum was limited to 1.4070, while the upward momentum was limited to 1.4250. But at the same time, the price almost immediately (the high – the next day) returned to its previous positions, continuing to trade within the wide-range flat.

Today, the GBP/USD bears again decided to "march": the bears were able to identify themselves at 1.4030. The last time the price was at such lows was more than a month ago - on May 13, when the market began to doubt that the British authorities would follow the plan to ease quarantine restrictions. And today the pound has fallen in price for the same reason – with the difference that hypothetical assumptions have become a sad fact.

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British Prime Minister Boris Johnson announced the extension of quarantine measures in the country for another four weeks. Downing Street has moved the deadline for lifting most restrictions from June 21 to July 19 - "for the sake of providing coronavirus vaccination to a larger number of residents." According to preliminary calculations, by this date, two-thirds of the adult population will be vaccinated with two doses, including all residents over the age of 50, all "vulnerable" persons, all health workers and social workers.

The situation with the incidence of coronavirus in the UK began to deteriorate again in the second half of May. Throughout almost the entire spring, the daily increase in new COVID cases in the country did not exceed the 3,000 mark. But over the past weeks, a consistent upward trend has been recorded (and is still being recorded). In particular, 7,606 cases of infection were registered yesterday. The situation is further aggravated by the fact that more than 90% of new COVID-19 cases in the country are infected with the "Indian" strain of coronavirus, which is more contagious than the "classic" COVID. According to recent studies, cases of infection with this strain double every 5-10 days (depending on the region). The risk of transmission of the virus at home increases by about 60% compared to the classic version of covid.

Against the background of such trends, experts are concerned that the further spread of this strain may affect the pace of lifting quarantine restrictions in the UK, and, accordingly, the pace of recovery of the British economy. By and large, the pound fell today not because of the four-week extension of the quarantine, but because of concerns about further prolongation, given the dynamics of the incidence of coronavirus.

However, in my opinion, the current price decline can be used as an excuse to open long positions. First, today's downward momentum is rather emotional. The extension of the current quarantine restrictions has been discussed for a long time, so there was no hype here. Secondly, the British prime minister expressed his confidence that after July 19, the decision to ease the quarantine will not have to be postponed again. At the same time, he stressed that the additional four weeks of quarantine are "vital", as the rush can negate previous achievements in the fight against the epidemic. And, in the end, it is necessary to take into account the high rates of vaccination in Great Britain. Almost 45 million people have received the first dose of the COVID-19 vaccine, and more than 30 million Brits have completed the vaccination process.

Another fundamental factor also speaks in favor of the GBP/USD longs. The fact is that a rather weak report on retail sales in the United States was published at the beginning of the US session. The disappointing release came just ahead of the Federal Reserve's June meeting, and this fact put significant pressure on the greenback. Thus, retail sales in the United States were in negative territory in May after a slight increase in April. The overall indicator decreased by 1.3% (with the forecast of a decline to -0.9%). Excluding car sales, the indicator was also below zero, falling to -0.7%. Both components came out in the red zone, significantly falling short of the forecast values. The decline in sales in April was recorded in almost all retail categories.

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All this suggests that the pound will soon return to its usual price range, despite today's update of almost a month's low. For now, the downward momentum has virtually faded, allowing bulls to seize the initiative. Thus, as soon as the pair settles above the lower line of the Bollinger Bands indicator on the daily chart (that is, it consolidates above the level of 1.4100), it is advisable to consider long positions with the first target at 1.4150 (the middle line of the Bollinger Bands indicator, which coincides with the Tenkan-sen line on daily chart) and the main target at 1.4220 (upper Bollinger Bands line on the same timeframe).

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

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