The British pound also made an impressive downward rally at the end of last week. Unlike the European currency, we have been waiting for a decline in the British pound for a long time. We have repeatedly drawn attention to the fact that the British currency has been growing in recent months, if not completely unreasonably, then clearly stronger than the fundamental factors suggest. Simply put, the pound has grown too much, so its fall at the end of this week, from our point of view, is quite logical and reasonable. However, it did not happen out of the blue for technical reasons. That is, the main reason for it was not the banal desire of buyers to fix the profit. The downward movement was triggered by macroeconomic statistics from overseas and fundamental factors. Thus, at the moment, it is not entirely clear whether the markets will resume buying the British currency from the new week on the basis of the "speculative" factor or will the upward trend be completed around the level of 1.4240? We remind you that over the past 11 months, the pound has grown by almost the same amount as it fell in 4 "Brexit" years. Therefore, a strong drop in the British dollar's quotes is possible. However, first, traders can simply resume buying the pound sterling without paying attention to anything, just as they have not paid attention to anything for the past few months. Secondly, the US Congress approved a package of stimulus measures from Joe Biden in the amount of almost $ 2 trillion, so a new portion of dollars will soon flow into the economy, which can significantly affect the exchange rate of the US currency. Thus, the upward movement may resume in the coming weeks, however, the correction may continue for some time.
As for the macroeconomic statistics for the next week, it will make a difference. In the first place will be the factor of the new stimulus package, which was approved by the lower house of Congress, and the factor of geopolitical tensions in the Middle East. We remind you that the approval of the new stimulus package by the Congress was announced yesterday, that is, on Saturday, when the foreign exchange market was already closed. Thus, traders could not yet play back this news, however, it is likely that they will do so on Monday. Therefore, we need to be ready for a strong movement on Monday. Returning to the macroeconomic statistics, on Monday in the UK and the US, business activity indices in the production sectors will be published. Both do not cause any concerns, as they are at high values and are unlikely to fall much by the end of February. On Wednesday, both countries that are interested in the pound sterling will publish indices of business activity in the services sector and there are no questions about the US again. But the British sphere of business activity raises questions. The previous value of the indicator was 49.7, despite the fact that a month earlier business activity was below the level of 40.0. That is, at the end of January, this indicator increased by more than 10 points, and if the growth continues in February, the service sector will begin to recover quickly after two winter "lockdowns". In contrast, for example, to the services sector of the European Union, where business activity is likely to remain below the level of 50.0. Also on Wednesday, America will release a report from ADP on changes in the number of people employed in the private sector. Recall that the latest ADP reports were ignored, as well as many others over the past year. However, last Thursday, the markets still worked out important statistics from overseas, so this time we can hope for a reaction. On Thursday, the UK will release a minor report on business activity in the construction sector, and in the States – several minor reports that are unlikely to be noted by traders. On Friday, the most important reports of the week will be published. The US unemployment rate, NonFarm Payrolls, and the change in the average hourly wage. And these publications, of course, have the highest probability that they will be worked out. However, they will be published on Friday, and before Friday, a lot of things can happen in the world. At the very least, a new escalation of the conflict in the Middle East. It is also unclear how traders will react on Monday to the approval by the US Congress of Joe Biden's "economic rescue plan". If there is a reaction, then on Friday the reports will pass through the prism of this reaction and the new reality for the US dollar. In general, we do not undertake to predict what will happen on Friday. It is better to focus on what will happen on Monday-Tuesday.
From a technical point of view, the pound/dollar pair on the 24-hour timeframe just corrected a little. The previous movement was so strong and prolonged that a drop of 340 points is just a pullback. The price could not gain a foothold even below the critical line. Therefore, at the beginning of a new trading week, you should pay attention to this factor – the critical line factor. If it is followed by a rebound, then with a high degree of probability, the upward movement will be resumed.
Trading recommendations for the GBP/USD pair:
The pound/dollar pair on the 4-hour timeframe also started to move down and here it looks more impressive. However, on the 4-hour timeframe, the price hit the Senkou Span B line. That is, we now have a double barrier in the form of the lines Kijun-sen on the 24-hour and Senkou Span B on the 4-hour. The rebound or overcoming of these lines will determine the further fate of the pair in the coming days or weeks.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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