03.03.202105:04 Analytische Bewertungen Forex: Overview of the GBP/USD pair. March 3. The United States will continue to increase the money supply and their national debt will continue to grow

4-hour timeframe

Exchange Rates 03.03.2021 analysis

Technical details:

Higher linear regression channel: direction - upward.

Lower linear regression channel: direction - upward.

Moving average (20; smoothed) - downward.

CCI: -51.4353

The pound has also declined against the US dollar in the past few days. However, while the European currency has been correcting against the global upward trend for two months now, the pound has been updating its 2.5-year highs as recently as last week. Thus, the movements of the two major currency pairs are completely different. However, the movement of the last few days is still synchronous, so we can assume that the same factors affect both major pairs. Unfortunately, it is impossible to say exactly what these factors are. In recent days, many experts and traders have talked about the yield of US government bonds, saying that this is a good reason for the strengthening of the US currency. However, it is worth noting that the yield is growing on 10-year bonds. It has been growing since September last year when it was about 0.5%. Now it is 1.44%, and, for example, in October 2018, it was more than 3%. Even if we take into account only the latest round of growth in bond yields, it takes time since the beginning of February, and the US dollar has strengthened only in the last few days. Thus, we do not consider the factor of changes in the yield of US government bonds - a factor that should be blamed for the current strengthening of the US currency. The same applies to the escalation of the military conflict in the Middle East. The strike on Syria was carried out on February 26, today it is already March 3, and the dollar continues to grow, although there were no new military actions after the airstrike itself. As for the global fundamental reasons, they generally speak in favor of the fact that the US dollar should plunge into a new prolonged decline. We are talking about the same new package of stimulus measures, which is almost 100% likely to be approved by the Senate, which is dominated by Democrats. Thus, new trillions of dollars will flow into the economy, and the supply of US currency in the markets will be much higher than it is now.

For a long time, we also paid attention to the matching factor of the US and EU (UK) economies as an explanation for the dollar's decline over the past year. Initially, this factor was relevant, as the US GDP in the second quarter of last year decreased by 31%. However, the American economy is recovering very quickly, not least because of the huge cash injections that stimulate demand, spending, investment, and economic growth in the long run. Although Jerome Powell is still pessimistic and talks about a long recovery path, a long period of low rates, and high volumes of securities repurchases from the Fed market, it is still worth noting that the American economy is indeed recovering very quickly. And it will do so even faster if the economy gets an additional $ 2 trillion. As for the consequences of such a strategy of the American government, the only negative is the growing national debt. But who doesn't grow it? In the same UK, in 2020, the national debt approached 100% of GDP, which is the highest value in the entire history of the country. It should be clearly understood that public debt is not the same as just debt. If you owe your neighbor 100 dollars – this is debt as it is understood by everyone. In the case of public debt, it can be formal. For example, the Fed is the owner of more than $ 4 trillion of US debt. It turns out that the States owe $ 4 trillion to themselves. The Fed can print any amount of money and buy back any amount of government debt. This organization is not controlled by Congress or the President at all. Thus, although the US national debt in 2021 is sure to grow even stronger and will amount to a record 30-31 trillion dollars, this is not a big problem for the US. For the United States, the main thing is not to miss out on world economic dominance, not to let the economy slide into recession, not to let China get ahead of itself. Despite this gigantic figure, it should also be understood that almost half of this debt belongs to the United States itself. For example, the Fed or various US funds and intra-government holdings. That is, it turns out that about half of these 31 trillion US dollars are owed to their organizations. It should also be understood that the Fed can print any amount of money at any time and buy back the debt from the government. Money devalues over time, and inflation shows how much it devalues. Thus, even taking into account the current "high" rates on ten-year treasuries, they are approximately equal to the current level of inflation. Accordingly, the creditors of the American state will at best receive zero real profit on the treasuries. Therefore, it is still necessary to service the US national debt, but the country does it with maximum benefit for itself. Thus, there is no need to worry about the national debt to the States, and the economy is stimulated just fine due to trillion-dollar infusions. Moreover, the dollar is depreciating, which increases exports, as American goods become cheaper on international markets, and it becomes cheaper to service the same national debt. Consequently, we believe that the US currency will have only downward factors on hand in 2021. However, they still need to be correlated with the factors of the British pound, which has risen in price at a record high over the past year, without any reason of its own. The situation in the UK is now such that it is time to talk about a powerful fall in the pound, and not about its growth. Nevertheless, the factor of changes in the volume of the US money supply eliminates all the negative from the UK. Therefore, in general, despite the wildest overbought sterling, the long-term upward trend may continue in 2021. The only US problem in the current environment is inflation, which will have a long-term effect. After all, it will not be possible to simply withdraw "helicopter money" from the economy.

Exchange Rates 03.03.2021 analysis

The average volatility of the GBP/USD pair is currently 140 points per day. For the pound/dollar pair, this value is "high". On Wednesday, March 3, thus, we expect movement within the channel, limited by the levels of 1.3824 and 1.4104. A reversal of the Heiken Ashi indicator back down will signal a new round of downward movement.

Nearest support levels:

S1 – 1.3916

S2 – 1.3855

S3 – 1.3794

Nearest resistance levels:

R1 – 1.3977

R2 – 1.4038

R3 – 1.4099

Trading Recommendations:

The GBP/USD pair started to adjust on the 4-hour timeframe. Thus, today it is recommended to open new sell orders with targets of 1.3916 and 1.3855 in the event of a price rebound from the moving average line. It is recommended to consider buy orders with targets of 1.4038 and 1.4099 if the price is fixed above the moving average line.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Viele Grüße,
Analytiker: Paolo Greco
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