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The Great British Pound – Analysis
The pound is rising and holding above some key levels. Currently sat above the 1.4100 against the US dollar, as the United Kingdom awaits the green light from the government to fully re-open. Come 21st June 2021, assuming there is no need for an extension to lockdown measures, we should have our first taste of what the new normal will be like. We are definitely not going back to pre-Feb 2020 ways, as the uncertainty around COVID variants like the Delta and Indian viruses have more than a slim chance of forcing the government to re-introduce draconian measures. However, against the majority of the G-7 currencies, the pound is doing very well.
While the BoE forecast for 2021 is robust at 7.25%, the Q2 GDP could be revised higher than the 4.3% expected figure, which followed the 2.1% GDP gain in March. Stronger than expected retail sales in April following the first major easing of lockdown measures has pushed the market to start thinking even more positively in regard to the UK’s ability to bounce back post-Brexit.
There has also been signs of progress on trade, with international trading partners keeping the rhetoric positive towards the UK even though the EU is still playing hardball around the Northern Ireland Protocol. There are trade deals to be shortly announced with Australia and Norway plus a positive indication of progress on the UK joining the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).
The UK’s International Trade Secretary Liz Truss said:
CPTTP membership is a huge opportunity for Britain. It will help shift our economic centre of gravity away from Europe towards faster-growing parts of the world and deepen our access to massive consumer markets in the Asia-Pacific. We would get all the benefits of joining a high-standard free trade area, but without having to cede control of our borders, money or laws.
The UK government will publish its outline approach, scoping assessment and consultation response before negotiations start in the coming weeks.
GBP is already the 2nd best performing G10 currency this year, but there is now more scope for that outperformance to continue over the coming months.
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The current trading level around 1.41 to 1.42 has been a major pivot over the last two decades. If Cable were able to rise into the trading range above that would open prices all the way to 1.7000 which was last traded in 2014.
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The pound is finding the rise in prices a bit slower now as we try and make our way through the 2018 swing highs of 1.4375 but there is little daily structure to act as resistance, so we just need the bulk of traders still short from that period to relinquish and buy back their position. The daily 20, 50 and 200 ema’s are showing increasing momentum to the upside, so if there was to be a pullback, I would expect the 20-day ema to act as the first dynamic support as it has done so far this year. A close below the April 2021 swing low would be a cause for concern for the bullish traders.
Currently, the ActivTrader sentiment is favouring the bullish traders on the platform with 55% long the pound versus the US dollar.
