4-hour timeframe
Technical details:
Higher linear regression channel: direction - sideways.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 42.3451
The British pound on Wednesday also began to correct, but at the same time, the upward trend also remains. In principle, both major currency pairs are now moving quite similar, although still not identical. The most important and exciting thing is directly observed on higher than 4-hour timeframes. The global technical and fundamental factors remain the main factors for determining the further direction of the movement of the euro/dollar and pound/dollar pairs. The pound/dollar pair shows with all its appearance that it is not ready for a larger correction than 20 percent of the entire upward trend, which began last March. The "speculative factor explains such a weak correction". And the fact that the British currency is still trading close to its three-year highs - the fact that trillions of dollars continue to flow into the American economy, banally increasing the supply of dollars in the world. However, recently we have focused too often on such an indicator as to the money supply. We conducted studies that showed that the money supply in the United States has increased from 1.5 to 3 times since the beginning of the pandemic in various aggregates. Simultaneously, similar aggregates in the UK and the EU grew by 15-25%. From our perspective, this conclusion alone is enough to understand why the US dollar has depreciated in the last year. If from March to November of last year it was possible to conclude about the fall of the dollar based on the political, social, economic, and epidemiological crises in the United States, then after November, the situation in the United States began to improve dramatically, and the dollar also fell. After all, it was in November that it became known that the odious Donald Trump was leaving, social tension caused by racist scandals subsided a little, and the economy began to recover after the disastrous 2nd quarter. Only with the "coronavirus" epidemic, everything remained relatively difficult. But what actions did the central banks of each of the countries we are interested in taking? Everyone knows: they lowered rates (except for the ECB) and introduced new stimulus programs. It is on the quantitative incentive programs that we will focus on in more detail.
If you look at the official data on the ECB, the Central Bank of England, and the Fed, you can clearly understand how the volumes of their balance sheets have changed since the beginning of the pandemic. Hence, it is also possible to clearly understand exactly how much money central banks have poured into their economies and how much money they have printed. First, consider the Bank of England.
The illustration shows that the Bank of England's balance sheet has grown since the beginning of 2020 from a value of 580 billion pounds to a value of 940 billion pounds in March 2021. Thus, the balance increased by 70-80% or 360 billion pounds. This money is highly likely to have been printed or created in bank accounts out of nowhere. Next, look at the ECB data.
In March 2020, before the pandemic, the ECB's balance sheet was about 4.7 trillion euros. And in March 2021 - 7.5 trillion euros. The balance sheet grew by about the same 70-80% or 2.8 trillion in absolute terms. Now, look at the Fed's balance sheet.
In March 2020, the balance was $ 4.1 billion, and in March 2021 – $ 7.8 billion. That is, the growth is more than 90% or $ 3.7 billion in absolute terms. So it was the Fed that poured the most money into its economy. Thus, even by the actions of exclusively central banks, it is evident that the money is most poured into the American economy, so it should not be surprising that it is the US dollar that is depreciating against the euro and the pound. And if you add all the stimulus packages from the US authorities, which also amount to trillions of dollars, everything becomes even more apparent.
But the fundamental background in the UK remains negative. It is clear to everyone that the national currency can not become more expensive with such a news background from its country. In Northern Ireland, protests and riots continue, and Scotland is preparing to leave the United Kingdom in the next 2.5 years. And according to the latest data, Northern Ireland is also going to leave the UK. This conclusion can be drawn from a BBC survey among residents of Northern Ireland, the results of which showed that the majority on the island of Ireland believes that the northern part of it will leave the Kingdom. Most respondents believe that in 25 years, Northern Ireland will not be part of the United Kingdom. More than 50% of Irish and Northern Irish people voted for the answer "Northern Ireland will leave Britain in 25 years". Interestingly, less than 50% of Irish and Northern Irish people voted for the answer "Northern Ireland will leave Britain within ten years". Thus, an "IrExit" in the coming years is likely to be avoided, but the outlook remains very challenging.
Thus, we recommend that traders now pay attention primarily to technical factors. The day before yesterday, there were good statistics on unemployment and wages in the UK and what? The pound began to fall in price. Yesterday, an inflation report was released, which accelerated at the end of March, and what? The pound responded with multidirectional movements of 15-20 points to this report. Thus, "macroeconomics" is now ignored, "the foundation" is not perceived by market participants. It all depends on the factor of money supply and the volume of incentives, and the technical picture.
The average volatility of the GBP/USD pair is currently 101 points per day. For the pound/dollar pair, this value is "average". On Thursday, April 22, we expect movement within the channel, limited by the levels of 1.3827 and 1.4029. The upward reversal of the Heiken Ashi indicator may signal the end of the downward correction.
Nearest support levels:
S1 – 1.3916
S2 – 1.3855
S3 – 1.3794
Nearest resistance levels:
R1 – 1.3977
R2 – 1.4038
R3 – 1.4099
Trading recommendations:
The GBP/USD pair started a round of downward correction on the 4-hour timeframe. Thus, today it is recommended to open new buy orders with the targets of 1.3977 and 1.4029 after the reversal of the Heiken Ashi indicator upward. Sell orders should be opened to overcome the moving average with the targets of 1.3794 and 1.3733 and keep them open until the Heiken Ashi indicator turns up.
