We present a medium-term investment review of the GBP/USD pair.
The most significant problem of the UK economy is inflation exceeding 10.0%, and all attempts of the Bank of England and the Treasury to put pressure on the indicator have no effect: thus, the interest rate has already reached 4.25%, and there is no doubt in its next increase at the meeting on May, 11. However, the March consumer price index was 10.1%, slightly slowing down from 10.4% a month earlier. At the same time, the core indicator, which does not consider food and fuel prices, continues to grow, holding at 6.2%. The only positive factor for the pound is the positive dynamics of service PMI, which rose to 54.9 points for the first time since May last year, providing an increase in the composite PMI to 53.9 points from 52.2 points earlier and balancing the decline in the manufacturing PMI to 46.6 points from 47.9 points.
The US dollar has been trading within a narrow range, around 101.500 in the USD Index for two weeks. The negative statistics from the labor market and the real estate sector offset all factors supporting the currency. Also, a new crisis in the banking sector, which is fundamental to the country’s economy, is possible. The first signals of problems in the form of the bankruptcy of Silicon Valley Bank were faded by the massive financial issuance of the US Federal Reserve and guarantee to protect the capital of depositors. However, on Tuesday, in its quarterly report, First Republic Bank reported a record outflow of capital from retail deposits, exceeding 40.0%, which put the company on the brink of sufficient cash liquidity. If the situation does not change in the coming days, the bank’s bankruptcy is inevitable. Investors have already begun to sell the issuer’s shares actively, which led to their fall of 49.0%. In addition to First Republic Bank, there are several other financial institutions with a similar situation, and the continuation of the bankruptcies series will disrupt the stability of the American financial system. In general, the situation in the US is much more complicated than in the UK, and the decline of the dollar may cause the uptrend in the GBP/USD pair to continue in the coming quarter.
Also to the underlying fundamental factors, technical indicators speak in favor of the positive dynamics of the asset. On the weekly chart, the price is moving within an upward correction, having reached an intermediate correction of 50.0% Fibonacci around 1.2520.
The formation of a global Head and shoulders reversal pattern is possible, the Neckline of which coincides with an intermediate correction of 50.0% according to Fibonacci. Let’s consider the key levels on the daily chart.
The daily chart shows that the price is consolidating above the resistance line of the local downward corridor, abandoned at the beginning of the month, and is gaining strength for another attempt to consolidate above the 50.0% Fibonacci level. Around 1.2115, which coincides with the base correction level of 38.2% Fibonacci, there is a zone of global cancellation of the buy signal, and if it is reached, the upside scenario will be canceled, and it is better to liquidate buy positions. The target zone is near the 61.8% Fibonacci full correction level, located at 1.2930, if it is reached, it is better to close profitable buy positions.
In more detail, entry into positions may be evaluated on the four-hour chart.
The entry level is at 1.2520, which coincides with the 50.0% Fibonacci intermediate correction level, and a local signal can be received this week when the quotes overcome the local high of the last week, giving the necessary confirmation for the formation of global long positions.
Given the average daily volatility of the trading instrument over the past month, which is 64.3 points average for the pair, the movement of quotes to the target zone around 1.2930 may take about 39 sessions but with an increase in volatility, the time may be reduced to 32 trading days.
The most significant problem of the UK economy is inflation exceeding 10.0%, and all attempts of the Bank of England and the Treasury to put pressure on the indicator have no effect: thus, the interest rate has already reached 4.25%, and there is no doubt in its next increase at the meeting on May, 11. However, the March consumer price index was 10.1%, slightly slowing down from 10.4% a month earlier. At the same time, the core indicator, which does not consider food and fuel prices, continues to grow, holding at 6.2%. The only positive factor for the pound is the positive dynamics of service PMI, which rose to 54.9 points for the first time since May last year, providing an increase in the composite PMI to 53.9 points from 52.2 points earlier and balancing the decline in the manufacturing PMI to 46.6 points from 47.9 points.
The US dollar has been trading within a narrow range, around 101.500 in the USD Index for two weeks. The negative statistics from the labor market and the real estate sector offset all factors supporting the currency. Also, a new crisis in the banking sector, which is fundamental to the country’s economy, is possible. The first signals of problems in the form of the bankruptcy of Silicon Valley Bank were faded by the massive financial issuance of the US Federal Reserve and guarantee to protect the capital of depositors. However, on Tuesday, in its quarterly report, First Republic Bank reported a record outflow of capital from retail deposits, exceeding 40.0%, which put the company on the brink of sufficient cash liquidity. If the situation does not change in the coming days, the bank’s bankruptcy is inevitable. Investors have already begun to sell the issuer’s shares actively, which led to their fall of 49.0%. In addition to First Republic Bank, there are several other financial institutions with a similar situation, and the continuation of the bankruptcies series will disrupt the stability of the American financial system. In general, the situation in the US is much more complicated than in the UK, and the decline of the dollar may cause the uptrend in the GBP/USD pair to continue in the coming quarter.
Also to the underlying fundamental factors, technical indicators speak in favor of the positive dynamics of the asset. On the weekly chart, the price is moving within an upward correction, having reached an intermediate correction of 50.0% Fibonacci around 1.2520.
The formation of a global Head and shoulders reversal pattern is possible, the Neckline of which coincides with an intermediate correction of 50.0% according to Fibonacci. Let’s consider the key levels on the daily chart.
The daily chart shows that the price is consolidating above the resistance line of the local downward corridor, abandoned at the beginning of the month, and is gaining strength for another attempt to consolidate above the 50.0% Fibonacci level. Around 1.2115, which coincides with the base correction level of 38.2% Fibonacci, there is a zone of global cancellation of the buy signal, and if it is reached, the upside scenario will be canceled, and it is better to liquidate buy positions. The target zone is near the 61.8% Fibonacci full correction level, located at 1.2930, if it is reached, it is better to close profitable buy positions.
In more detail, entry into positions may be evaluated on the four-hour chart.
The entry level is at 1.2520, which coincides with the 50.0% Fibonacci intermediate correction level, and a local signal can be received this week when the quotes overcome the local high of the last week, giving the necessary confirmation for the formation of global long positions.
Given the average daily volatility of the trading instrument over the past month, which is 64.3 points average for the pair, the movement of quotes to the target zone around 1.2930 may take about 39 sessions but with an increase in volatility, the time may be reduced to 32 trading days.