GBP/USD. Preview of the new week. The unrest in Northern Ireland is a serious problem, but London is in no hurry to solve it. - Kakiforex.com - Financial Market Media No. 1 in the World GBP/USD. Preview of the new week. The unrest in Northern Ireland is a serious problem, but London is in no hurry to solve it. GBP/USD. Preview of the new week. The unrest in Northern Ireland is a serious problem, but London is in no hurry to solve it.
InstaForex

April 19, 2021

GBP/USD. Preview of the new week. The unrest in Northern Ireland is a serious problem, but London is in no hurry to solve it.

 The British pound continues its steady decline as part of a correction against the upward trend that lasted for a year. The correction is still very weak, and there is currently no correlation between the euro/dollar and pound/dollar pairs. In principle, the 24-hour timeframe is now so eloquent that looking at it makes everything clear. The whole upward trend that started last March doesn't even fit in the illustration. Recall that its length is 2,800 points. What is shown in the illustration is a correction against this trend, which took 35 working days (that is, about a month and a half) and 560 points down. We can't say that this is quite small, the pound/dollar pair was still declining, but compared to the entire trend, this is still small. The most important thing is that the absolute majority of fundamental factors were and remain against the pound. This is Brexit, this is the "Scottish question", this is the "Northern Ireland protocol", this is the fall in the economy this winter due to two "lockdowns'', this is the reduction in trade with the EU countries in 2021. However, despite all these problems, the trend for the pair remains upward. From our point of view, the explanation of what is happening can be everything. Strong inflating of the money supply in the United States. However, in the case of the pound sterling, the "speculative factor" also plays a role. Look at the 24-hour timeframe on a smaller scale so that you can see the trades for the last 4 years. After the referendum decided to separate from the European Union, the pound fell by 2,800 points. If we take the lowest point for the last 4 years, then by 3400 points. With a negative fundamental background from the UK. During the last year of the pandemic, when everything was very unhealthy in the UK, the pound rose by 2,800 points. This moment perfectly shows that there are "invisible" factors that rule the market now. From our point of view, this is a "speculative factor" and a factor of pumping trillions of dollars into the American economy. Thus, whatever the fundamental background in the Foggy Albion is now, the trillions of dollars that have poured into the American economy will "pull the blanket over" much more effectively.


Recall that the key topic of recent weeks for the UK is the mass riots on the island of Ireland. As expected, the "Boris Johnson mechanism" to prevent the emergence of a border between Northern Ireland and Ireland is working on a "C". People on the island are dissatisfied with the fact that the border actually appeared (otherwise it could not be). Thus, skirmishes began between nationalists who want to reunite Ireland and Northern Ireland, forces that advocate a "united Britain" and the police. Simply put, people on the island of Ireland are unhappy with the "Northern Ireland protocol" and the Brexit agreement that concerns their countries. This is exactly what was feared in London because only in 1998 it was possible to end the 30-year bloody confrontation on the island of Ireland. Now all this smoldering fire can break out with a new force. It is noteworthy that London is not in too much of a hurry to intervene. For example, last week there was a proposal to convene an emergency meeting with representatives of the authorities of Ireland, Northern Ireland, and England. But London has abandoned this idea and is only sending additional forces to the island to confront the rebels.


There will be quite a lot of interesting information in the UK next week. For example, on Tuesday, data on unemployment, applications for unemployment benefits, and changes in the level of wages in the country will be published. Not the most important reports. Traders have not reacted to unemployment for a long time, either in the US or in the UK. A more important report will be published on Wednesday – the consumer price index in March. Inflation, according to experts, may rise to 0.7-0.8% y/y from the current 0.4% y/y. Needless to say, such values are very far from the Bank of England's targets? In any case, we draw the attention of traders to the fact that if the Central Bank sets a target of 2% inflation, this does not mean that the acceleration of inflation is good for the pound. A striking example was last week when US inflation accelerated to 2.6% y/y, and the US dollar reacted with a fall. Rising inflation is bad for the exchange rate of the national currency. On Friday, the UK will publish a report on retail sales for March, which may grow by 1.4-1.5% on a monthly basis, as well as reports on business activity in the services and manufacturing sectors for April, which are almost guaranteed to cause no reaction. In the United States, business activity data will also be published on this day, and this is the only macroeconomic statistics that are planned overseas next week.


What can we say about the outlook for the pound in the coming weeks? Despite the fact that the entire fundamental background continues to be not in favor of the pound, it is the growth of the pound that we are waiting for. The reasons were described at the beginning of the article. Of course, this does not mean that the global correction is 100% - but it will end right tomorrow. It may continue for some time. But traders can see in the illustration above how strong it is. This movement can hardly be called a "trend". Thus, the consolidation of the price above the Kijun-sen and Senkou Span B lines can be interpreted as a strong signal for the resumption of the upward trend.


Recommendations for the GBP/USD pair:


The pound/dollar pair on the 4-hour timeframe is trying to start a new upward trend. However, the movement on this timeframe now most resembles a "swing". The pair alternates ascending and descending segments of 250-300 points with a general minimum downward slope. Thus, now the price has overcome the Ichimoku cloud and the critical line, but this absolutely does not guarantee that now the pair will go up at least 200-300 points. Nevertheless, the trend is upward - we are trading for an increase. Best of all, use even lower timeframes.