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GBPUSD forex analysis
The UK has gone a long way in 2021 to ease restrictions imposed due to the coronavirus pandemic. The latest twist to the plot has been the rise of the Delta variant which made the UK government extend the Day of Freedom by another 4 weeks. UK businesses and citizens will equally be counting down the days this July. Those who were most vulnerable have basically been double vaccinated and the autumn flu season will be the point at which this group get a booster jab too. Even though the cases are rising hospitalisation is still manageable.
The UK economy is forecasted to grow more rapidly into the end of the year even though there has been this 4-week delay. The government had already pre-empted the continuation of disruptions when it extended the furlough scheme. If anything, this is a great Canary in the Coal Mine for what the government expects going forward. Money talks louder than the rhetoric from the officials, who have been caught literally with their pants down at times. If the furlough scheme or other new measure are extended into the end of 2021, we can assume the government will keep the draconian measures going.
For the most part the furlough scheme has prevented the UK economy from going down a very deep black hole, but there are still major parts of industry and commerce that may not come back to pre-pandemic levels. Today The Gap retailer said that they are closing all their UK stores this summer and moving everything online. The travel industry is still in disarray and the entertainments industry will soon collapse if people are not allowed to go out and enjoy themselves in bars, clubs, theatres, and festivals. There is also a real worry that Brexit plus COVID-19 has created a tight labour market with lots of workers leaving the UK. This will result in wages increases which will be inflationary.
The outgoing Bank of England MPC member Haldane, said wages are likely to increase and inflation is likely to be above target, though high inflation is likely to be transitory.
The BoE announced a slowdown in its pace of asset purchases and aims to complete its 150bn QE programme by end 2021. As per the Fed the BoE may start raising rates in Q3 2022 from 0.10% to 0.25% and market analysts predict two hikes in 2023 taking the bank rate to 0.75% by end 2023.
The sentiment on the ActivTrader platform towards the pound prospected against the US dollar is high but not quite at extreme levels. The higher this sentiment goes bullish the more likely we are to see sweeps of key swing lows and traders get stopped out of their positions.
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The GBPUSD on a daily chart is now at support from a rising trend line that connects the swing lows that bears are targeting and the daily 200 exponential moving average. NFP could reverse the US dollar sentiment but assuming the US dollar rally is to continue, pressure on Cable will remain and a larger market correction should be expected. I favour a break down, then a retest of the previous support. Before a continuation move lower. We have seen how the daily 200 ema on the EURUSD acted as key resistance in confluence with market structure, so this GBPUSD chart could mimic that price action.
The GBPUSD short trade would be invalidated if we could get price above the 20 and 50 period moving averages and the June 24th swing highs. There could also be a case of bullish divergence between the recent swing lows and the stochastic indicator. Something technical traders will be keeping an eye on, especially if they get a daily reversal candle to the upside.
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Keeping an eye on the US dollar index is probably the best way to go currently, as the dollar is on a tear since the FOMC meeting was perceived to be more Hawkish for the greenback.
DXY is at resistance from a descending trendline, but swing highs are great targets to the upside. The daily 200 ema is acting as support so any close below there would be a signal to get out of longs should you be in any currently.
