The behavior of the pound is genuinely surprising, because amid a sharp slowdown in inflation in the United States, which will be discussed a little later, it declined. At the same time, the single European currency increased. Most likely, this is a combination of several factors at once, which caused such a strange behavior of the pound. Firstly, investors began to prepare in advance for statistics on GDP and industry, which were published this morning. In fact, the European session began with them. Secondly, this is the reaction of the market to the beginning of the lifting of the restricted quarantine regime, which also begins today. In this case, there was no specifics as to what kind of relief would be until the last moment. They were announced only yesterday. In fact, this cannot even be called a relaxation of the restricted quarantine regime, and all less sane and serious steps, such as the opening of non-grocery stores, bars and hairdressers, are announced only at the beginning of June, even if the epidemiological situation continues to improve. Moreover, the easing of restrictions affects only England, while Scotland, Wales and Northern Ireland still retain all previously imposed restrictive measures. In other words, everything remains the same. And investors were counting on the launch of the economy.
At the same time, the dollar really had no reason for optimism. Consumer price growth slowed from 1.5% to 0.3%. They expected a decline in inflation to only 0.5%. But this is all in annual terms, while in monthly terms, the level of consumer prices decreased by 0.8%. That is, we can safely say that deflation is beginning in the United States. And combined with an incredible increase in unemployment, this becomes another parallel with the Great Depression. So it is not surprising that reasoning has already begun to appear on the topic that the Federal Reserve System may reduce the refinancing rate to negative values.
Inflation (United States):
So today's macroeconomic data turned out to be slightly better than forecasts. According to preliminary estimates, the decline in GDP, amounted to only 1.6%, and not 2.0% based on the results of the first quarter, which was as expected. Let me remind you that the economic growth rate was 1.1% last year. Thus, it is necessary to state a rather significant drawdown. Moreover, this data is only for the first quarter, and restrictive measures related to coronavirus were introduced only closer to the end of March, that is, at the very end of the quarter. And the recession in the economy began literally instantly. So in the second quarter, the recession in the economy will be greater. The only good news is that the recession was not as deep as expected. Therefore, the decline in the second quarter should also not be so terrible, as it seemed literally quite recently. In addition, the decline in industrial production accelerated from -3.4% to -8.2%. That, too, turned out to be better than expected, as they expected a decline of 9.9%. Of course, the British economy is still declining but just not as fast as intended. However, the market seems to have not noticed anything at all, and somehow gradually reacted to this data. Probably nothing at all.
GDP growth rate (UK):
It seems that the story of the easing of restrictive measures imposed due to the coronavirus pandemic was the main impulse. And this was the only reason yesterday that the pound ignored the data on inflation in the United States. Today, it will have an opportunity to make up for lost time in the form of data on producer prices, the growth rate of which, at 0.7%, should be replaced by a decline of 0.3%. It will be another confirmation of the fact that the United States is steadily slipping into deflation.
Producer Price Index (United States):
In terms of technical analysis, we see a local downward interest during which the quote was able to break through the minimum of May 7 - 1.2265 and consolidate below it. In fact, this is a kind of pressure on the pound sterling, which reaches the market from the external background, but it is worth considering that the current movement is in the direction of the main trend, thus nothing will change in the medium - long term.
If we analyze the past day in more detail, it will be seen that the round of short positions fell on the time period of 12:00 - 20:00 UTC+00, during which the quote managed to consolidate in the area of the subsequent coordinate 1.2250, where the periodic supports were found.
Considering the trading chart in general terms, the daily period, high activity is recorded, where impressive inertial fluctuations did not affect the integrity of the global downward trend.
It can be assumed that the level of 1.2250 locally restrains the pressure of sellers, where a pullback/correction is not ruled out in the direction of the 1.2350 value, but at the same time, the downward mood will continue and traders should carefully analyze price consolidating points lower than 1.2250, so as not to miss the main trading deals.
Concretizing all of the above into trading signals:
- Short positions are considered lower than 1.2240, with the prospect of a movement to 1.2150-1.2160.
- Long positions are considered in terms of local progress higher than 1.2305, towards 1.2350.
From the point of view of a comprehensive indicator analysis, we see a sell signal relative to hourly and daily periods, due to the general market background.
