4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -26.6110
On Monday, May 24, the British pound also traded quite calmly, but with a downward bias, unlike the euro/dollar pair. But the British currency remains very close to both its local highs reached last week and its 3-year highs. Thus, we continue to believe that they will be overcome in the near future. An upward trend is rarely interrupted just a few points before the highs. In addition, the "global fundamental factors" continue to work, which do not allow the pair to move far from its highs. What should I do if the pound/dollar pair can't even adjust normally for a long time? Recall that the entire upward trend, which began last year, is already 2800 points and may increase even more in the near future. During this time, the maximum correction was 550 points. The pound is growing almost constantly, except for some periods. And now, on the 18th and 21st of the day, the quotes reached their 3-year highs and failed to overcome them. So what? Has the correction started? No, the pair is still trading near these levels. Therefore, traders are now "guilty" of the fact that the pound can not even go down by a couple of hundred points (speculative factor), and the US central bank, which pours trillions of dollars into the economy. The entire "foundation" and "macroeconomics" have only a local impact on the pair.
Meanwhile, as early as this week, the G7 countries may sign an agreement under which multinational corporations will pay a single tax rate, no matter in which country of the world they deploy their activities. The Financial Times reports that this agreement may be only an interim step towards a larger deal between the UK, the US, Japan, France, Italy, Germany, and Canada. It is also reported that the deal can be concluded online as early as May 28 and will involve the introduction of a single tax rate, at least 15%. Details of the deal will be discussed in early June in London. The Financial Times reports that this agreement could seriously limit the ability of multi-companies to withdraw huge profits from taxation. It is no secret that in many countries of the world there are preferential tax rates or even zero (not for all of course, but, in particular, for large companies), which makes such countries attractive for placing production facilities in them and generally doing business. Such countries still receive some money in their coffers, but they do not compete with developed countries in the amount of the tax rate. Therefore, many companies transfer all possible departments and segments of their own business to countries where you can pay much fewer taxes, and countries like the United States or Germany do not receive huge amounts of money in their budget. Naturally, it is no accident that this issue has been raised right now when the whole world is just recovering from the consequences of the pandemic. Budgets are empty, deficits are huge, and government debts have risen. The treasury needs to be replenished somehow, so the States are proposing to raise taxes for corporations and millionaires and to introduce a single corporate tax rate around the world to discourage smart companies from transferring business to tax havens. It is still difficult to understand how this will all be implemented in practice; nevertheless, it can become a real "news bomb".
For the pound/dollar pair, as for other currency pairs, this does not matter much yet. Naturally, if this agreement is approved, capital flows from country to country will begin, production will begin to move, and so on. Of course, all this will affect the foreign exchange market. But for now, traders should worry about something else. Although in the current conditions, there is not much to worry about. The pound is growing, the euro is growing, trends are visible to the naked eye, the reasons why such movements occur are clear as day. Therefore, we can only follow the trend and not wonder why the pound is now growing, when on all counts it should be cheaper.
From a technical point of view, the upward trend continues on the 4-hour timeframe. Both linear regression channels are directed upwards, and the price spends very little time below the moving average line. We would say that in most cases, overcoming the moving from top to bottom occurs, if not by accident, then for reasons that depend on the indicators themselves, and not on the price. Therefore, even if the price goes briefly below the moving average, in most cases, the upward movement is restored. What can affect this balance of power? So far, nothing. Even the statements of the Bank of England, of which there has been a sufficient number recently, cannot change the mood of traders and the Fed's policy. Moreover, most of these statements were "hawkish", although it is hard to believe that the Bank of England is ready to tighten monetary policy at this time. And inflation in the UK now continues to remain below the target level. This means that the British regulator has no reason to interfere at all now. He needs to continue to stimulate the economy so that after a weak two winter quarters, it starts to recover faster. Do not forget that Britain recently left the European Union, and the negative impact of Brexit also remains and will remain for at least several more years.
The average volatility of the GBP/USD pair is currently 80 points per day. For the pound/dollar pair, this value is "average". On Tuesday, May 25, we expect movement within the channel, limited by the levels of 1.4074 and 1.4234. The reversal of the Heiken Ashi indicator back up may signal the resumption of the upward movement.
Nearest support levels:
S1 – 1.4130
S2 – 1.4099
S3 – 1.4069
Nearest resistance levels:
R1 – 1.4160
R2 – 1.4191
R3 – 1.4221
Trading recommendations:
The GBP/USD pair continues a round of corrective movement on the 4-hour timeframe. Thus, today it is recommended to open new buy orders with the targets of 1.4221 and 1.4234 after the reversal of the Heiken Ashi indicator to the top. Sell orders should be opened if the pair's quotes are fixed below the moving average with targets of 1.4074 and 1.4069.
