The speculative interest in the pound is so great that the participants in this fascinating process persistently continue to ignore the real economic condition in Britain. In any case, the pound immediately increased as soon as news emerged that the rate of COVID-19 cases in the UK was declining. This is justified by the fact that a change in the epidemiological situation will be a reason for an early easing of quarantine measures. However, these are just speculations. It should be noted that the macroeconomic dynamics in the UK is much worse than in the EU or the US, but speculators decided to disregard the fundamental factors. The main issue is that the further the pound breaks away from reality, the stronger its collapse will be, when this very economy can no longer be ignored.
At the same time, the market also ignored the applications data for US unemployment benefits, which were worse than expected. In particular, the number of initial applications for unemployment benefits rose from 848 thousand to 861 thousand, against the forecasted decline to 765 thousand. In turn, the number of repeated applications declined from 4,558 thousand to 4 494 thousand, against the forecasted 4 290 thousand. However, there was a market stagnation by the time of its publication. And although the data came out worse than forecasted, the US labor market continues to recover.
Number of re-claims for unemployment benefits (United States):
Similarly to what they did on the British economy, speculators will also most likely ignore today's retail sales data, whose growth rate of 2.9% can be replaced by a decline of -0.7%. And judging by how the pound is rising on rumors and illusions, speculators will adhere to preliminary data on business activity indexes. The growth of which may not be relevant.
In particular, the business activity index in the service sector is expected to rise from 39.5 to 40.0. The manufacturing PMI is also likely to rise from 54.1 to 54.5, while the composite one is from 41.2 to 41.5. However, this is just what the leaders of largest companies feel, while consumer activity seems to be deteriorating. Nonetheless, the profits of companies, employment levels and the pace of economic growth do not depend on mood, but on the consumer activity.
Retail Sales (UK):
In the United States, the same PMI is likely to show a decline. Here, the business activity index in the service sector may decline from 58.3 to 56.4, while the manufacturing index may also do so from 59.2 to 57.5. In general, the composite PMI is set to decline from 58.7 to 56.6. It can be noticed that everything is expected to decline in the US, but these indices are still clearly higher than in the UK. However, there is a massive speculative interest around the pound, so their data can simply be ignored.
Composite PMI (United States):
Despite everything, the GBP/USD pair continued to update the local high of the medium-term trend. As a result, the quote managed to approach the psychological level of 1.4000, where a local slowdown occurred. It should be recalled that the 1.4000 level has a deviation error due to its importance, which forms an interaction range of 100 points (1.3950/1.4000/1.4050).
The market dynamics returned to growth again after a period of slowdowns, where there is a visible speculative sentiment towards market participants.
Based on the quote's current location, it is evident that the current movements of the price occur within the psychological level of 1.3950/1.4000/1.4050.
Considering the general trading chart, the daily period, a rapid upward trend is visible. The quote develops at the high of this trend.
We can assume that the speculative hype will continue in the market, despite the pound's high level of overbought. It is recommended to buy deals after the price is held above the level of 1.4050 in the H4 chart.
It is noteworthy that when moving in an upward trend, one should be ready that the market might change the side of speculative interest. In addition, the pound may sharply weaken due to its extreme overboughtness.
From the viewpoint of comprehensive indicator analysis, it shows that technical instruments unanimously signal a buy, as the price is 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.
InstaForex analytical reviews will make you fully aware of market trends! Being an InstaForex client, you are provided with a large number of free services for efficient trading.