The British currency traded more logically than the euro during the past week. The main logic was that a downward movement began at the end of the week. And it began after the pair worked out the 1.2467 level, which is the previous local high. Thus, we can assume that the pound/dollar pair has encountered strong resistance and will not be able to continue the upward movement, which is completely unjustified, from a fundamental point of view. The US dollar could still fall against the euro, since the EU economy can suffer less than the American one (although this cannot be said with utmost certainty at the moment), but there will almost certainly be greater losses in the British economy than in the United States . And what will happen in 2021 is even hard to imagine. After all, negotiations between London and Brussels on an agreement that will be in force after 2020 have once again reached an impasse. They now continue only formally. No personal meetings between delegations. There are only videoconferences between David Frost and Michel Barnier, each of which only recently recovered from the coronavirus. The parties need to make a decision to extend the transition period until July 1 and London has flatly refused to postpone the deadlines.
The second half of the upcoming week will be interesting for the GBP/USD pair. No news is expected from the United States and Britain on Monday, while indices of business activity in the service sectors will be published on Tuesday. The ISM index will be released in the United States, which is considered quite important and significant, but, as we already mentioned in the EUR/USD article, these data do not really matter now, as business activity has fallen to record low in all countries affected by the virus COVID 2019.
There will be no economic data in the UK on Wednesday, and the April ADP private sector employment report will be released in the US. Recall that this report displays the change in the number of employees in the United States. Thus, its negative values, in fact, indicate the number of unemployed for a month and practically coincide with the total values of reports on applications for unemployment benefits for the same period. Thus, in April, the ADP report, according to experts, will show a reduction of ... 20-21 million workers. During the mortgage crisis in the United States, the highest decrease in ADP was 800,000. In total, the report showed negative values for about two years. On average, up to -10 million workers were recorded during this period. For two years. Now -20 million in one month. No matter how shocking this figure looks, we believe that market participants have long been ready for such values. After all, unemployment reports come out every week and the general trend is already clear. Thus, the ADP report can only confirm the data that has already been known for a long time. Accordingly, we believe that traders will ignore this report as well.
The results of the Bank of England meeting will be summed up on Thursday. No special changes in monetary policy are expected. Bids will remain at an ultra-low level. As for programs to stimulate the economy, it is quite possible to inject additional money through lending and repurchasing securities from the open market, or to expand existing ones. However, this will not surprise traders. Especially after the Federal Reserve and European Central Bank announced similar actions. Accordingly, the speech of the BoE Chief Andrew Bailey will be of the greatest importance. Most likely, Bailey will declare an economic shock, the scale of the economy's decline, and so on. That is, it will provide the markets with exactly the same information that Jerome Powell and Christine Lagarde provided a week earlier. Since the news of the fall of the British economy is clearly not unexpected, then this event can be ignored. Only official forecasts for 2020 on the main macroeconomic indicators of the British economy will arouse interest. In the United States, the next report on applications for unemployment benefits is scheduled for publication on this day, which predicts an additional 3 million applications. Reflecting more accurately current unemployment levels, the secondary application rate is projected at 19.5 – 20.5 million as of April 25. In other words, it almost matches the value of the ADP report. Another few million unemployed people in the US are also unlikely to cause a shock among market participants.
US nonfarm payrolls reports, the unemployment rate and changes in the average hourly wage are set to be released in the last trading day of the week. Everything is quite simple with the latest report– a neutral forecast value of 3 – 3.3%. But the official unemployment rate will jump to 15.5-16.0% by the end of April. And this will no longer be data on applications for benefits, but specifically on unemployment, that is, more accurate. Needless to say, during the publication of this report, it will be very difficult for US President Donald Trump to hold back tears? As he is eager to be re-elected for a second term. The number of new jobs created outside of agriculture may be reduced by 20-21 million. That is, the figures are exactly the same as for secondary unemployment claims, and as for the ADP report.
What can I say about the result? First, all the most important information will come back from overseas, and it is unlikely to be a surprise for traders. Second, we will not get the most important data on how much the UK economy may contract this week. Thus, traders can continue to trade based solely on technical analysis or their own reasons, which are not related to macroeconomic data and the fundamental background.
In technical terms, the pair began a downward correction against a new upward trend. The downward movement may continue since quotes consolidated below the critical Kijun-sen line. However, until the Ichimoku cloud is overcome, the sell signal (not yet formed) will remain extremely weak. Accordingly, short positions should not be large in volume.
Recommendations for the pair GBP/USD:
The pound/dollar may start a new downward trend now. We still believe that some unease remains on the market, and that the entire fundamental background is ignored. Therefore, increased attention should be paid specifically to technique. Consequently, as long as the pair is located below the critical Kijun-sen line, short positions with the goals of Senkou Span B and 1.2240 lines (will be reviewed at the opening of trading on Monday) are relevant.
