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pound is ready to storm the 37th figure



DATE OF PUBLICATION: 2021-01-19 21: 04: 04 The pound paired with the dollar stuck at the base of the 36th figure, waiting for the next information driver. That driver could be tomorrow’s inflationary release, which will be published in the UK. If the main indicators go into the “red zone”, the market will again resume talks about the prospects for the introduction of a negative rate by the Bank of England. Rumors about this have been circulating for a long time – since the beginning of the coronavirus crisis. And although some members of the British regulator are skeptical about this idea, the very idea (even in a hypothetical context) keeps market participants “in good shape.” A disastrous inflation report will put this issue back on the agenda, putting pressure on the pound. Let me remind you that the latest UK inflation data disappointed traders. In particular, the general consumer price index on a monthly basis “plunged” into the negative area, being at the level of -0.1% with the forecast of growth up to 0.6%. Thus, inflation was at the level of August, when the next coronavirus restrictions were introduced in Britain. The core consumer price index came out at 1.1%, slowing down for the first time after two months of growth. The indicator also fell short of the forecasted values, showing a decrease in price pressure. December figures, which will be published tomorrow, should demonstrate the opposite trend. Preliminary forecasts indicate that the overall index in monthly terms will leave the negative zone and reach 0.3%, while in annual terms the indicator will accelerate to 0.5%. The producer price index should also leave the negative area (it is expected to rise to 0.6% m / m after a decline to -0.3%). The other components of the release should demonstrate similar dynamics, in particular, the producer purchase price index and the selling price index. As we can see, preliminary forecasts for tomorrow’s release are positive. But this is the well-known insidiousness of the situation: overestimated expectations can do a “disservice”, literally and figuratively. In the event that the stated forecasts do not come true, the pound will come under significant pressure, especially against the backdrop of ongoing talks about the advisability of introducing a negative rate. If we talk directly about the gbp / usd pair, then the 37th figure is at stake with the prospect of growth to annual highs (1.3725) and beyond. And vice versa – if the report turns out to be a failure, then the bears will have a good reason to return to the bottom of the 35th figure. It should be noted here that the inflation release is important in itself, while in the current conditions it should be considered in the context of the prospects for easing monetary policy. In just two weeks – February 4 – the first meeting of the Bank of England this year will take place. At the previous meeting, Andrew Bailey emphasized that this issue of introducing a negative rate is still “at the stage of study”, so it is inappropriate to talk about it in a practical plane. The Bank of England has been studying this issue for six months already – the Central Bank economists interact with the country’s financial institutions, modeling and analyzing the consequences of this step. First of all, possible side effects for the country’s banking sector are studied. The central bank organized a large-scale study, in which financial institutions of the country had to express their opinion on reducing the rate to zero or below zero. The financial institutions had to send their responses to the relevant requests by mid-December. It is expected that at the February meeting, the British regulator will present the results of its research and announce a general “verdict” regarding the prospects for a rate cut in the negative area. In this context, a weak inflationary release will be on the side of the gbp / usd bears, as in this case the supporters of the “dovish” scenario will have additional arguments in their favor. But there is also a downside to the coin – if tomorrow’s indicators turn out to be at least at the forecast level, the bulls will strengthen their position, especially against the background of the vulnerability of the American currency. Indirect inflation indicators, which were published earlier, suggest that inflation is most likely not disappointing – despite the quarantine restrictions in the UK, which were in effect in December. Therefore, in my opinion, the priority for the gbp / usd pair remains with long positions. From a technical point of view, the northern scenario also looks more likely: on the daily chart, the price is between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator. The initial upside target is 1.3710, the upper Bollinger Bands line at D1. To gain a foothold within the 37th figure, buyers of gbp / usd need a sufficiently powerful informational reason (or a general large-scale weakening of the greenback), therefore, if the above goal is achieved, it is better to close long positions by taking a wait-and-see position. InstaForex

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