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Pounds gets ready to breakout higher

by Nathan Batchelor
6 May 2021
in Forex
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GBPUSD Technical Analysis – Channel breakout
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GBPUSD Analysis

The Bank of England’s Monetary Policy Committee (MPC) sets monetary policy to meet the 2% inflation target, and in a way that helps to sustain growth and employment. Back in September 2020 the MPC stated that the “outlook for the economy remains unusually uncertain”, as the UK was looking more likely to be going into further lockdowns amidst continuing developments in the COVID-19 pandemic.

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The British pound was trading above a key support level which was formed in the summer months as Cable rose from the March 2020 lows. At the end of July 2020, the price action in GBPUSD had risen sufficiently for the daily 50 ema to cross above the 200 ema which is commonly known as the ‘Golden Cross’. Since July, the daily 200 ema has acted as support when tested around the MPC meeting in September 2020, and from then on, the 50 ema has proven to be significant support.

Currently the ActivTrader sentiment indicator is fairly balanced with the traders ever so slightly more bearish at 53% versus 47% bullish.The UK chancellor Rishi Sunak signalled he was happy with the measures announces in the March Budget and felt that it would be enough to restore public finances.

“As we look forward to reopening over the coming weeks and months, there are signs to be cautiously optimistic and we can see that in the data. I’m hopeful that will be sustained through the rest of the year,” he said.

“We are seeing consumer confidence back to pre-pandemic levels. Chief finance officers are very positive. We know that there is an enormous amount of excess savings both in the household sector, approaching £140bn, and £100bn sitting on corporate balance sheets.”

The BoE MPC now have to tread carefully and will no doubt follow the US Federal Reserve and wait to raise interest rates, and then only do so based on evidence of sustained inflation.

Each month, the Office for National Statistics (ONS) collect around 180,000 prices of about 700 items. They use this ‘shopping basket’ to work out the Consumer Prices Index (CPI). CPI for the UK is currently around 1% so under the 2% target. Employment data for the UK is starting to pick up from the Nov-Dec 2020 lows, so the policies will work as long as the UK can open up for business fully. A lot of this depends on the COVID-19 situation and with 1 in 4 adults in the UK vaccinated, there is hope that the UK economy can bounce back.

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On the Daily chart there is a clear line of resistance and this week’s price action is contained within Monday’s range.

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On the H1 chart, 1.3900 to 1.3926 is the current trading range and the 50 & 200 period ema’s are again showing signs of bullish momentum on the intraday chart.

For the traders looking to take a bullish trade, it will be prudent to wait for a breakout to the upside, and then wait for a retest of this range, so that there is a clear test and a defined support level. With the expectation of a continuation to the upside.

Tags: BoECovid-19GBPUSDMonetary Policy
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