GBPUSD Forex Analysis
Confidence is a preference for the habitual voyeur, so says the opening line to Blur’s Park Life. But confidence is what the markets thrive or die on. Governments don’t just collapse, nor do Empires or currencies. It is a switch from believing the people in charge have an idea of what is needed to be done, and that they are capable of meeting their objectives and responsibilities. The belief that the pound will be worth at least the same tomorrow as it is today what keeps the smoke and mirrors and status-quo of the promissory note alive. To the opposite of confidence, with contempt and disillusionment.
Today is ‘Freedom Day’ in the UK and although it is a month overdue the government have been forced to do it now or never, as any time beyond this date risks them loosing face and increasingly making the COVID-19 3rd wave infection spike worse.
UK Gilts are rising and yields along the curve are dropping, the Bank of England is likely to prioritise its balance sheet, (as we have seen with the RBNZ) over rate hikes which is going to weigh on the short-term rates. The move into fixed income tells me that the markets are not overly confident with the UK’s prospects, and you only have to watch the news for 30 mins to realise industry is not happy and nor are the general public. There is a real risk that the UK will grind to a halt and die of thousand pings, as more and more people are being told to down tools and self-isolate, because their mobile phone has been within a Bluetooth range of someone, who may have had a positive test result. With the talk from the Bank of England being Hawkish the UK economy which seems counter intuitive when looking at what is happening with regards to COVID-19, a boost to GBP will occur if the BoE say that they will be more accommodative during this period of uncertainty.
Across the globe, the infection rates are rising but the UK has gone above and beyond the norm and double vaccinated a large majority of adults and done all they can to protect the vulnerable.
A lack of confidence in the UK, and a lack of confidence in global oil demand or commodities is being reflected in the markets this morning. The UK government is unfortunately not making the confidence levels any better with mishaps and U-turns when we need them to be strong and self-assured. The FTSE100 has dropped as 99 of the 100 countries are under their opening prices.
The UK is not the only market that is down, the DAX and other European bourses are falling heavily too. The move is toward safe havens and a risk-off environment.
Once again, we see the yen and US dollar as the go to currencies but interestingly the Swiss franc is the weaker of the 3 main safe havens today. The policy divergence of the Federal Reserve plus fiscal policies from the Treasury and US Administration is going to cause an ever-larger gap with those that have negative or zero interest rate policies. The Kiwi would be following the Aussie and Canadian dollar a lot lower, a lot faster, if the RBNZ hadn’t signalled a more Hawkish policy last week.
The ActivTrader sentiment indicator shows that the GBPUSD traders are still slightly more confident that the pound can rise against the US dollar and long term, maybe they are correct. However, looking the chart there is a higher probability that any trader long Cable will have their stop losses hunted.
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The daily chart for GBPUSD shows that price action has driven the pound below the 200-exponential moving average and the marked up double bottom is my Take Profit target #1.
Momentum and Price Action are moving to the downside but while the daily 50 ema is above the 200 ema, there is a chance that this new low is more of a look below before heading back into the trading range, rather than a full-on collapse. The collapse would be usually confirmed when there is a move below support and then a retest, where bulls fail to capture any significant higher ground.
Catching a falling knife is detrimental to your account. For the traders looking to long the GBPUSD, we need to see a level of support hold. For a bounce to occur and then a continuation trade. Preferably with no areas of balance directly above. For the traders looking to short, a retest of broken support which confirms as resistance is going to be key and a trailing stop would be advisable whilst the daily 50 ema is above the 200 ema.
