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GBP / USD tries to regain confluence zone around 1.4150 level

  • GBP / USD is close to a significant bearish move if it fails to regain the trend line.
  • Central banks and economic performance are the focus of investors.

The GBP / USD is trading around the 1.4150 level, having set a low of 1.4115 and a high of 1.4211 on the day, now remaining flat on the day after a recovery from daily lows.

The US dollar hit new lows against the major currencies, while Federal Reserve officials continue the mantra of their pessimistic monetary policy stance That has eased concerns about inflation.

Central bank speeches in focus

This week the messages have been consistent with what Fed Chairman Jerome Powell has said repeatedly over the past few weeks.

On Monday, Fed Board Governor Lael Brainard, it eased concerns about inflation and said it expects price spikes associated with supply bottlenecks and the reopening of the economy “to diminish over time.”.

James Bullard, chairman of the St. Louis Federal Reserve, also said Monday that while still in the pandemic, This is not the time to talk more about changing the parameters of monetary policy.

Today Tuesday, Richard Clarida of the Fed said that threats to financial stability are manageable and that the data continues to support well-anchored inflation forecasts.

Meanwhile, the lack of positive drivers for the British currency has put the focus elsewhere for currency investors. Britain’s rapid launch of vaccines has sparked optimism in the British pound.

” There have been several reports of levels of strong consumer activity in the UK after the partial relaxations of the Covid restrictions. That said, optimism may be limited by concerns about Covid variants that could delay a full reopening of the economy, ” said Rabobank analysts.

As for UK policy makers, there has been a calm tone towards inflation this week, which has helped the pound sustain recent gains.

The Governor of the Bank of England, Andrew Bailey explained, for example, that he does not see long-term implications of an expected rebound in inflation..

Lieutenant Governor Cunliffe said that inflation will return to the central bank’s 2% target as growth slows.

That said, there are other members on the Monetary Policy Committee who have a different opinion.

Member Saunders said the UK economy may need a “modest” tightening of monetary policy if there is a more sustained spike in inflation than the central bank expects.

Meanwhile, the UK reported April’s public sector net borrowing and the CBI distribution trade survey for May.

Net off-bank indebtedness was £ 31.7 billion compared to the expected £ 31.0 million and the revised £ 26.3 billion (£ 28.0 billion) in March. On the other hand, the reported sales component of the CBI retail trade stood at 18 compared to the 25 expected points and since April 20.

This is a rare downside glitch for UK data in recent weeks and worth keeping an eye out for.“explained Brown Brothers Harriman analysts.

“Last week, the CBI Industrial Trends Survey for May became firm, with total orders of 17 versus -8 in April and sales prices of 38 versus 27 in April. Clearly, the economy is recovering strongly as the nation reopens.

It is noteworthy that headline inflation rebounded to 1.5% year-on-year in April, while the 10-year equilibrium inflation rate has risen almost 60 bp this year to 3.60% today, the highest since 2008 ”.

Improved positioning of the US dollar

Regarding positioning, net bullish positions in GBP returned some of the previous week’s gains obtained after various election results in the UK, according to the latest Commitment of Traders report.

This contrasts with speculators’ net bullish positions in the dollar index, which rose for the second week in a row.

“The performance of the USD in the spot market in recent sessions has been mixed, and sentiment is still governed by the debate on inflation,” explained analysts at Rabobank.

GBP / USD technical analysis

The GBP/USD fell below the uptrend line.

GBP / USD 4 hour chart

GBPUSD

The price has fallen to the previous lows and has rebounded strongly to the confluence zone of the broken trend line, the 21-period EMA and the 38.2% Fibonacci retracement.

In case of not being able to recover the mentioned confluence, the bias will remain inclined to the downside.

GBP / USD technical levels

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