Market Analysis – GBPUSD
The British Pound this morning is increasing in value against the US dollar as of this week’s market open, currently trading at 1.4158. This morning the momentum and volatility increased as we approached the open of the British and European Session. Even with the increase during this morning’s trading so far, the market is still cautious of Friday afternoon’s price rejection which caused a significant drop in the exchange rate by approximately 90 pips. The price rejection formed at a previous resistance level (from the last week of February 2021) and the asset has struggled to cross this previous level of collapse throughout the whole of last week. For this reason traders are cautious of this psychological level, or possibly if the asset may be overbought.
Looking at the performance of each currency individually, we can see the US Dollar is declining today through the US Dollar Currency Index. The currency the previous week also declined, but did slightly increase on Friday. Generally speaking, the US Dollar has reached previous price lows and traders are wondering whether the sentiment will now change, taking into consideration the current psychological price of the Dollar. Looking at the Pound we can see the currency is declining against the Euro, Yen and Swiss Franc, but is showing some minor positive movement against the Canadian Dollar.
Investors are still analyzing the latest US data on initial jobless claims. The indicator decreased from 478,000 to 444,000 and reached the lows of the pandemic. However, the number of continuing claims increased to 3.751M, which suggests that more and more people are unable to find decent jobs and are forced to live off government payments. In general, there are two trends in the labor market: the number of new unemployed is decreasing, but the rate of employment growth remains rather slow. Yesterday, the US Treasury Department proposed to introduce a global minimum corporate tax rate of 15% or higher. Finance Minister, Janet Yellen, said that the establishment of uniform rules will prevent corporations from moving to different countries to reduce the tax burden. Other large countries with traditionally high taxes have also welcomed the idea. Though, generally speaking, this can have a negative impact on the global economic and fair competition.
Last week the UK released strong economic data and the Governor of the Bank of England is due to speak today. Manufacturing PMI for May rose from 60.7 to 66.1 points, while Service PMI increased from 60.1 to 61.8 points, significantly exceeding market expectations. The lifting of a large number of quarantine restrictions provides support to British business, primarily the service sector. Nevertheless, many enterprises report problems due to the rise in prices for raw materials and delivery of goods, which slows down the growth of business activity. UK retail sales also rose sharply for April, increasing by 9.2% MoM and by 42.4% YoY. The positive dynamics were the result of the opening of secondary stores. The biggest increases were in clothing and fuel costs. This data indicates the likely serious growth of the British economy in the second quarter of this year.
The UK is also seeing a very active stock market, which is also having its effect on the currency. The main postal service in the UK, Royal Mail Group reported a 116% increase in operating profit for the year. Yesterday, the shares of the UK’s leading seller of train tickets, Trainline Plc., fell by nearly 30% after the government announced reforms that would create a rival ticketing application. Among the growth leaders in the index are Experian Plc. (+4.73%), Rightmove Plc. (+3.84%), and Compass Group Plc. (+3.63%).
Brexit continues to have a slight impact on the pound’s position. British Brexit Secretary, Stephen Barclay, confirmed that the EU is not fulfilling its treaty obligations regarding trade agreements with Northern Ireland, which creates a tense situation and shifts the timeline for the settlement of the issue. The main drivers scheduled throughout the day are likely to be the speech by the UK’s Central Bank’s Governor, as well as speeches by the Members of the Monetary Committee in the US.
Resistance levels: 1.4150, 1.4200, 1.4232, 1.4275.
Support levels: 1.4100, 1.4050, 1.4000, 1.3960.