InstaForex

July 5, 2021

Overview of the GBP/USD pair. July 5. Janet Yellen warns of a possible US default.

 Technical details:

Higher linear regression channel: direction - upward.

 Lower linear regression channel: direction - downward. 

Moving average (20; smoothed) - sideways. 

CCI: -13.4649


The British pound, paired with the US dollar, was trading higher and much more actively than the euro on Friday. The pound/dollar pair passed more than 100 points during the day and worked out a moving average line by the end of it. Thus, on Monday, a rebound or an overcoming will occur from the moving, which will help traders determine the further direction of the pair's movement. As in the case of the euro, we believe that the decline in quotes may continue for some time since a new round of corrective movement has begun on the 24-hour timeframe, which is unlikely to end above the previous local minimum. We fully assume a decline in the quotes of the pound in the area of 1.3600- 1.3666. At the same time, the events of last Friday make us wonder whether the markets are preparing for the resumption of the upward movement right now. On the one hand, the positive effect for the US dollar from the NonFarm Payrolls report could be blurred by weak unemployment. On the other hand, so far even the local trend has not changed and now we can only talk about the not quite logical reaction of the market last Friday. However, we recall that a couple of weeks ago, the markets also did not quite logically react to the results of the Fed meeting, when no changes were made to monetary policy. However, nevertheless, the markets rushed to buy the US currency as if the Fed had announced a 2% rate increase. Thus, the general picture of the current situation is as follows: in the short term, the downward movement to the area of 1.3600-1.3666 may resume. In the medium term, we are waiting for the resumption of the upward trend.


Meanwhile, in the UK, the greatest attention is now focused, unfortunately, on the "coronavirus". Recall that in the last few weeks, the incidence of COVID and its new strains has been growing both in the UK and in some countries of the European Union. At the same time, it is already quite possible to talk about the third or fourth "wave" of the epidemic in the UK, since last week the number of daily recorded cases was consistently above 20 thousand and was approaching the value of 30 thousand. We believe that this factor can have a restrained influence on the pound. Nevertheless, the new round of development of the epidemic and new strains of the virus itself is a new problem for the whole world. Now, attention is focused on this problem. Everything is so much easier when there is a sufficient number of vaccines. Therefore, we can say that so far the authorities of the UK and the European Union are not sounding the alarm about this. However, you must agree that this is very alarming.


Meanwhile, in the United States, Treasury Secretary Janet Yellen said that the country could face a default as early as August 2021 if Congress refuses to raise the national debt ceiling. Recall that the United States probably faces a similar problem every year, since the budget is in deficit every year, which means that the country continues to "live in debt" and increase these very debts. Accordingly, the US Congress should raise the maximum allowable debt ceiling every year. Earlier, we have already written several times about the US national debt. In short, in America, living in debt is normal. It is how the whole country lives. For many years, there has been talk that the States are about to be declared bankrupt, and their economy will collapse like a house of cards. However, the American economy continues to remain in the first place in the world in terms of GDP, and now in the first place in the world in terms of recovery rates after the crisis. Thus, by and large, raising the debt ceiling is not a problem at all. Recall that the last time the US Congress froze the ceiling in 2019. Roughly speaking, the Ministry of Finance cannot place government bonds and raise funds above a certain value. The Ministry of Finance also needs to repay debts on current obligations. Janet Yellen said late last week that the coronavirus pandemic and the crisis have caused uncertainty about when the current limit will be exhausted. According to her, this may happen as early as August, when Congress will be on vacation. In this case, the country will face big problems that can give rise to a new financial crisis. "Failure to raise the debt limit will have catastrophic consequences for the economy," Yellen said. "This will provoke a financial crisis. This will put at risk the jobs and savings of Americans at a time when we are still recovering from the coronavirus pandemic," the US Treasury Secretary said. Most likely, in the near future, this issue will be raised in Congress, as well as the topic with the adoption of the budget for 2022.


We also remind traders that the US currency continues to be influenced by global fundamental factors, which even Janet Yellen indirectly spoke about in her speech. The States want to increase the public debt. Consequently, we can well expect even greater inflation of the US money supply. Recall that the draft budget in the United States for the 2022 fiscal year implies spending $ 6 trillion, which is three times more than in the 2021 budget. This budget implies the financing of two programs that previously had the form of incentive packages – "infrastructure" and "social". Thus, the money supply may continue to inflate in the US in the near future, which will provoke new falls in the US currency, from our point of view.


The average volatility of the GBP/USD pair is currently 81 points per day. For the pound/dollar pair, this value is "average". On Monday, July 5, we expect movement inside the channel, limited by the levels of 1.3745 and 1.3907. A reversal of the Heiken Ashi indicator downwards signals a possible resumption of the downward movement.


Nearest support levels: S1 – 1.3794 S2 – 1.3733 S3 – 1.3672 

Nearest resistance levels: R1 – 1.3855 R2 – 1.3916 R3 – 1.3977


Trading recommendations:


The GBP/USD pair has started a new round of upward correction on the 4-hour timeframe. Thus, today it is recommended to open new sell orders with targets of 1.3794 and 1.3745 in the event of a price rebound from the moving average. Buy orders should be opened if the price is fixed above the moving average with targets of 1.3907 and 1.3977.