The British pound is likely to remain in the turbulence zone in the new week. The reason is not in the macroeconomic statistics, but in the coronavirus raging around the world, which continues to affect everyone without exception. It is good that in 80-90 percent of cases, it does not cause complications, and the patient does not need hospitalization. However, as we have repeatedly said, the main danger of the virus is that there is no vaccine against it, it spreads extremely quickly and it is difficult to contain it even with the help of quarantine measures. For the world economy and the economy of each individual country, the epidemic is much more dangerous than any financial crisis. Because the epidemic, as it turned out in 2020, simply paralyzes the work of most businesses. Accordingly, the economy of any country simply begins to contract. As they say, "to break-not to build". The economy will shrink very quickly, but it will take a very long time to recover. Thus, we believe that the whole world has entered a stage of prolonged crisis. And we don't know how long the pandemic will continue, much less how long the global economy will recover. However, it is already clear that a rapid recovery is not expected. In fact, all of the above applies to both the UK and the United States. A large amount of macroeconomic information will be published in both countries in the new week. As before, the main focus will be on data for March. We will try to figure out which reports this week are worth paying increased attention to by traders.
There will be no important publications in either the United States or Britain on Monday, March 29. Thus, this day can be considered a semi-weekend. This does not mean that volatility will fall to normal values, as markets remain in a state of panic. On Tuesday, much more interesting reports will be at the disposal of traders, although by and large there is only one question - GDP in Britain for the fourth quarter. Since the fourth quarter does not include March 2020, this indicator has practically no value in these conditions. The forecast is 1.1% in annual terms and 0% in monthly terms.
The index of business activity in the UK manufacturing sector will be published on Wednesday morning, the forecast is 47. The hour of America will come in during the second half of the day... First, the ADP report on changes in the number of employees in the private sector for March will be released. The reduction is expected to be 150,000 – 170,000. The last time in the last ten years the reduction was by 30-40 thousand was at the end of 2017 . This is the only case since the 2008 crisis. But since the current state of things in the world is comparable to that crisis, we will turn to those figures to try to predict the current ones. So, during the mortgage crisis in the United States for 1.5-2 years, every month recorded a drop in the number of employees in the private sector. The maximum reduction was equal to 800,000, on average, each month the indicator lost 400,000. Thus, we believe that the real losses of indicators such as NonFarm Payrolls and ADP reports will be much greater than experts predict... And it is these failed reports that can be important for traders. Later in the day, the Markit manufacturing PMI will be released with a forecast of 49.2 and the ISM PMI with a forecast of 44.3.
There will be another crucial report for the United States on Thursday, and a report for further actions by their government - applications for unemployment benefits a week before March 27. Forecasts this time are more real - 3 million. However, in reality there may be even more of them, since the epidemic in mid-March has already gained momentum and began to progress at an exponential rate of growth. Thus, if a week earlier there were 3.3 million applications, then last week there could be 5-6 million.
On the last trading day of the week, data on business activity in the UK services sector with an "excellent" forecast of 35.7 are planned, and reports on NonFarm Payrolls (forecast -100 to 150 thousand) and unemployment in March (forecast: increase from 3.5% to 3.9-4%), indexes of business activity in the US services sector from Markit and ISM with forecasts "below the plinth" and the most "safe" data on average wages. Considering how many reports from the US this week may turn out to be disastrous and comparable with the crisis figures of 2008, both the euro and the pound can continue to grow. However, we recall that market participants can ignore all reports in the current state, so the technical picture remains the most important.
Recommendations for long positions:
The pound/dollar continues a fairly strong upward movement, and the levels of volatility remain panic. We recommend that you pay attention to the fundamental background, especially those reports that relate to March data for the United States. Nevertheless, more attention should be paid precisely to technical factors. There are no signs that a correction will begin at the moment, and the targets for long positions at the beginning of the week will be 1.2695 and 1.2785.
