Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 175.4726
The British pound continued to trade rather indistinctly during April 1. Volatility again declined during the day, and the pair was not able to resume the downward movement, which would be logical from a technical and fundamental point of view. We have repeatedly said that the pound sterling has not even been able to adjust normally after almost a year of an upward trend, within which it has risen by 2,800 points. The correction at the moment is only 550 points. The fundamental background from the UK has left much to be desired for several years. By some miracle, GDP did not turn negative in the fourth quarter, but in the first quarter of 2021, it is almost guaranteed to decrease again. The fact that vaccinations in the UK are proceeding at a high rate does not help the pound in any way, since this factor arose in the last month, when the British currency, after all, was corrected and became cheaper. Thus, the situation for the pound sterling is not the clearest right now. We can expect a further drop in quotes, but then the question arises, when the European currency declined, why did not the pound decline along with it? If the markets are reacting to the high pace of recovery in the US economy, then why is the dollar not growing in pair with the pound? If the markets are happy that more than half of the population in the Kingdom has already received the first vaccination, then why is the pound not growing? By the way, in the United States, the process of vaccination of the population is also going on at a high rate, so the pound does not have an advantage over the dollar in this indicator.
In the article on the euro/dollar, we considered such a factor as the infusion of trillions of dollars into the US economy, which can be followed by an increase in inflation and a fall in the exchange rate of the national currency against its main competitors. However, there is another side to the coin. The American economy is recovering at a much faster rate than the British or European economies. The faster it recovers, the more likely it is that capital will flow from Britain and the European Union to the United States. Moreover, now Europe is again closed for quarantine due to the third wave of the "coronavirus". Thus, the probability of a strengthening of the US dollar, according to this factor, even increases. The question is: which factor will the markets pay more attention to? And how will the reaction of the markets relate to the change in the volume of money supply in the United States? After all, the growth of the money supply in the United States will cause a market fall in the exchange rate of the US currency. It will not be provoked by traders who, due to fundamental factors, will begin to get rid of the US currency. Thus, in parallel with the process of natural depreciation of the dollar, there may be another process in which market participants buy the dollar, for example, to invest it in US treasury bonds or the US stock market. Then these two factors, it turns out, will level each other. From our point of view, the US stock market is already very overheated. The economy is recovering, but it won't go much higher than pre-crisis levels any time soon. This means that the American economy will not have a greater advantage over the European or British economy compared to the pre-crisis period. Based on this point, we are still betting in favor of the depreciation of the dollar in 2021 based on an additional 5-6 trillion dollars (at least), which will be almost guaranteed to be poured into the economy. However, the second "rescue package for America" involves investments over 8 years, so the total figure can be reduced to $ 4 trillion. But it's still very much.
To top it off, we suggest paying attention to the indicators of the money supply in the European Union, Britain, and the United States. We did a comparison a couple of months ago. Now is the time to update the data.
Here is a graph of the change in the M1 money supply aggregate in the United States. Comments, as they say, are unnecessary. We didn't even specifically take into account the first months of 2021 when the figure rose from $ 6.75 trillion to $ 18.4 trillion. From April 2020 to January 2021, this figure increased from 4.8 trillion to 6.75 trillion, which is almost 1.5 times. If we compare January 2020 and January 2021, the growth of the money supply is 1.5 times. If we compare January 2020 and the latest data, the growth is 3.5 times.
Here is a similar chart for the euro currency. From the beginning of 2020 to the current moment, the M1 money supply has grown from a value of 9 trillion euros to a value of 10.5 trillion euros. That is, less than 20%.
Here are the data for the UK and the British pound. Since the beginning of 2020, the money supply in the Kingdom has grown from 1.8 trillion pounds to 2.2 trillion pounds, which is a little more than 20%. The difference, as they say, is on the face. Thus, most likely, this gap between the money supply will increase in 2021. And we believe that this factor will continue to put pressure on the US dollar. Simply under market laws, no currency can rise or fall constantly.
By the way, in the case of the pound sterling, it is quite possible that the "speculative factor" will also work, which can give additional strength to the British currency.
The average volatility of the GBP/USD pair is currently 87 points per day. For the pound/dollar pair, this value is "average". On Friday, April 2, therefore, we expect movement within the channel, limited by the levels of 1.3734 and 1.3909. A reversal of the Heiken Ashi indicator back down may signal a new round of downward movement.
Nearest support levels: S1 – 1.3794 S2 – 1.3733 S3 – 1.3672
Nearest resistance levels: R1 – 1.3855 R2 – 1.3916 R3 – 1.3977
Trading recommendations:
On the 4-hour timeframe, the GBP/USD pair again consolidated above the moving average line. Thus, today it is recommended to open new sell orders with targets of 1.3733 and 1.3672 if the price is fixed back below the moving average. Buy orders should be opened after overcoming the moving average with the targets of 1.3855 and 1.3909 and keep them open until the Heiken Ashi indicator turns down.
