The pound continues to surprise us with more and more new records. Yesterday, it climbed to such values that it has not been at since the end of April 2018. But what is much more interesting is when exactly this breakthrough occurred. If the periods of growth of the pound coincided with the publication of incredibly good macroeconomic data from the UK, or dreadful ones from the United States, then no questions would arise. However, there is clearly no economic miracle happening in the UK itself, and the United States is obviously very far from a complete collapse. On the contrary, American statistics are noticeably better than British ones. And yesterday's market itself occurred after the publication of any statistical data. In other words, it seems that the growth of the pound is purely theoretical. Ergo, it is important to remain cautious, as it can literally collapse at any moment.
A quick glance at yesterday's labor market data is enough to indicate that something is going wrong in the United Kingdom. After all, the unemployment rate rose from 4.9% to 5.0%. Of course, a rise to 5.1% was expected, and the unemployment rate itself is noticeably lower than in the United States. However, it is growing, whereas in America it is declining. Moreover, the growth rate of average wages accelerated from 2.8% to 3.6%, which of course looks extremely positive, especially when you consider that they were waiting for an acceleration to 3.0%. But this is only at first glance. If wages are rising in the face of rising unemployment, this clearly means that the lowest-paid and unprotected groups of citizens are losing their jobs. That is, the business thus reduces its costs. To put it simply, it is the poorest who pay for the crisis, while the richest do not lose anything. But the trick is that the lowest-paid workers are the biggest consumers. Their combined costs practically create the entire economy. That is, such a trend has quite serious consequences, and only of a negative nature. After all, in the future, this will lead to a drop in aggregate demand, a drop in retail sales, a reduction in company profits, and a further increase in unemployment. And so on in a circle. It is worth noting that as soon as the data was published, the pound went down. And large investors understand what all this threatens.
Unemployment rate (UK):
The decline of the pound, however, was replaced by growth quite quickly, which lasted almost until the end of the US trading session. If we assume that this growth is speculative in nature, and today there will still be a meeting of the Federal Commission on Open Market Operations, then everything falls into place. One of the main topics now is Joseph Biden's plan to support the American economy, which strongly resembles simple populism. The new president of the United States wants to literally hand out almost two trillion dollars more. Moreover, the vast majority of this money should be allocated directly to the citizens of the United States. It sounds extremely positive, unless we consider the fact that everyone will receive no more than $ 600, and on a one-time basis only. In American conditions, this is an extremely small amount, and it will not fix the situation of those unfortunate people who lost their jobs due to the coronavirus epidemic. This means that a huge amount of money will be spent simply for nothing, and no positive effect will follow. Rather, it will only get worse, since this money needs to be taken somewhere. And it can only be taken by cutting other expenses, or by increasing the already huge national debt. And yes, the business itself, which could create new jobs, will see almost no money. In general, it turns out that it is the Federal Reserve that will have to take on the role of correcting the situation again. To do this, the regulator will have to expand business access to additional funding. This can only be done by expanding the quantitative easing program, since the reduction in interest rates does not affect immediately, but only over time. It can take up to several months between the change in the rate level and the moment when the economy begins to feel it for itself. So, the whole trick is that the Federal Reserve has recently expanded its quantitative easing program, and the Joseph Biden plan has not yet passed final approval, and will begin to act only in the near future. In other words, the Federal Reserve System will most likely not do anything at all today, which in the current conditions can be compared almost with the tightening of monetary policy. And this may be the signal for the beginning of mass purchases of the dollar.
The GBP/USD currency pair showed speculative interest during the past day, as a result of which the quote once again approached the area of the local maximum of the medium-term trend, where it formed a stagnation of 1.3720 / 1.3750.The GBPUSD currency pair showed speculative interest during the past day, as a result of which the quote once again approached the area of the local maximum of the medium-term trend, where it formed a stagnation of 1.3720 / 1.3750.
At the same time, the market dynamics were higher than the average norm, which confirms the speculative activity in the market. From the point of view of the distribution of trading forces, a high degree of oversold US dollar is recorded.
If we proceed from the current location of the quote, the consolidation stagnation in the range of 1.3720/1.3750 persists in the market, which can be regarded by traders as an accumulative process.
Looking at the trading chart in general terms, the daily period, it is clear that the quote is moving in the area of the absolute maximum of the medium-term trend.
The natural basis associated with the maximum of the trend has been repeatedly regarded by the market as resistance, forming a reverse course. Thus, in this situation, keeping the price lower than 1.3715 may lead to an increase in the volume of short positions, which will lead to a downward movement in the direction of 1.3650.
An alternative scenario of the market development will be considered if the price holds above the key mark of 1.3750, for a four-hour period. In this case, this step will be regarded by traders as a signal of the resumption of the trend.
From the point of view of a comprehensive indicator analysis, it can be seen that technical instruments unanimously signal a purchase by finding the price at the peak of the trend.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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