Market Analysis – GBPUSD
The GBPUSD over the last 24 hours has not shown any major strong price movement as the asset has traded in both directions the day before, and today is trading within a thin price range, or in other words a sideways trend with little volatility. The movement yesterday was mainly driven by the price action of the US Dollar across the market. The reason for the lack of volatility so far today is that investors are waiting for further market drivers such as today’s major events surrounding the Bank of England, or tomorrow’s US employment figures. The market is holding back before positioning their trades.
As well as analysing the instrument itself, it is also vital to analyse the movement of each individual currency to determine where the momentum is being driven from. The US Dollar yesterday saw both bullish and bearish price movements. The day started strong for the Dollar, but corrected later in the day. This morning the US Dollar Index is actually declining further and the momentum has increased over the past 3 hours. The Pound yesterday actually strengthened against its main competitors including Canadian Dollar, Euro, and Yen. Today the Pound is seeing little volatility and mixed price movements.
Market participants are focused on today’s Bank of England meeting on the interest rate. Despite the fact that no changes in the vector of monetary policy are expected; it will be important for investors to hear updated forecasts from the British regulator. In addition, the Bank of England is expected to estimate the timing of the start of monetary tightening, as the epidemiological situation seems to be under control. In addition to the Bank of England, the UK is expecting Markit Services PMI for April. Market forecasts suggest that the indicator will remain at 60.1 points.
The market is also evaluating the seriousness of the tension between the UK and Scotland. The market fears that as a result of the elections, supporters of the independence of this part of the UK may strengthen their positions. They may try to lead a new referendum on Scotland’s secession from the United Kingdom, as many Scots fiercely oppose Brexit and wish to remain part of a single European Union. Prime Minister, Boris Johnson, has already said that, in his opinion, most British citizens would not approve of a new referendum while the country was emerging from the pandemic. Thus, London is unlikely to allow a plebiscite. Nevertheless, a possible victory for the supporters of Scottish independence could lead to serious instability in British domestic politics and, in terms, strain the Pound.
Investors are focused on the release of employment data from ADP and comments from US Treasury Secretary, Janet Yellen. For April, Nonfarm Payrolls increased by 742,000, but the figure fell short of the expected 800,000. The largest increase in employment was in the hotel and leisure sectors, but it is still less than in the pre-crisis period. There was also a significant increase in the indicator in trade, in the transport sector, and the utility sector.
Treasury Secretary, Janet Yellen, admitted the possibility of a slight increase in interest rates at some point this year to prevent overheating of the rapidly recovering economy. However, the official said that this issue would be decided by the US Federal Reserve as it always has been traditionally, and she was not trying to influence the opinion of the regulator. The Treasury Secretary also confirmed that the US authorities continue to work on developing a single corporate tax rate that will be established in all countries to prevent large companies from moving to jurisdictions with lower taxation.
Resistance levels: 1.3900, 1.3930, 1.3963, 1.4000.
Support levels: 1.3860, 1.3834, 1.3801, 1.3762.