The pound-dollar pair jumped 150 points today – the pound was trading at the bottom of the 38th figure at the beginning, afterwards, it crossed the upper limit of the Kumo cloud on D1, which corresponds to the 1.3950 mark. This dynamic is primarily due to the dollar's weakness: the US dollar index collapsed to a one-and-a-half-month low today, marking the bottom of the 91st figure. Dollar pairs react accordingly: to some extent, the greenback is under pressure. The GBP/USD pair showed the strongest volatility, as the price grew not only due to the devaluation of the dollar, but also due to the strengthening of the pound. If we look at the main cross-pairs that the pound is involved in, then we will see that the British currency is strengthening its position both against the euro, the yen, and the franc.
It is worth noting that the current week is full of events that are very significant for the pound. We will find out data on the labor market, inflation, and retail sales. Also, the PMI indices in the services and manufacturing sector will be published in the UK. According to preliminary forecasts, all these releases will reflect the active recovery of the UK economy after a deep recession.
But today's upward surge of GBP/USD is due to a different fundamental factor. Let me remind you that the week before last, protests began on the streets of Belfast and other cities in Northern Ireland, where participants burned cars, threw stones and sticks at the police, and also clashed with them. One of the key factors in the aggravation of the situation was dissatisfaction with Brexit. The bone of contention was the protocol on Northern Ireland, which effectively created a customs border between it and the rest of Britain in order to maintain a "transparent" border between the two parts of the island of Ireland. Large-scale clashes took place between groups of loyalists (that is, those who advocate the unity of Great Britain), nationalists (supporters of the annexation of Northern Ireland to Ireland) and representatives of the police.
After the death of the husband of Queen Elizabeth II, the protesters announced a "temporary truce" - until the end of a multi-day funeral ceremony. The Duke's funeral was held last Saturday, but street rallies did not resume - neither yesterday nor today. Belfast is patrolled by reinforced police and military units, but street groups are not "eager to fight". It is likely that the de-escalation of the situation is explained by the position of Brussels. At the weekend, the European Union said that "it is possible and necessary to agree with London on Northern Ireland." The corresponding statement was made by the vice-president of the profile commission Marosh Shevchovich. According to him, the EU and the UK will be able to "soon" develop mechanisms to protect the market from illegal import of goods and at the same time mitigate the problems for citizens and businesses in Northern Ireland. Such a courtesy on the part of the Europeans was "appreciated" by both traders and, apparently, opponents of the actual border between Ireland.
Also, the pound rises in price in anticipation of key macroeconomic releases. Tomorrow, we have data in the labor market. According to preliminary forecasts, the unemployment rate in Britain will fall to 4.9% (according to other estimates - it will remain at 5%). The growth rate in the number of applications for unemployment benefits should increase by 24,000. On the one hand, this is a negative result, but on the other hand, this indicator jumped to 86,000 in January (that is, a positive trend will be recorded). The level of average earnings should also demonstrate positive dynamics, having risen to 4.9% (including premiums) and to 4.3% (excluding them). And here it is necessary to take into account that British data on the labor market are somewhat belated - for example, in February many quarantine restrictions were in force, which are not in effect today (since April 12, open terraces of pubs have been opened in Britain, as well as hairdressers, fitness clubs, etc. etc.). Therefore, the very fact of strengthening the labor market in the context of a lockdown (even if the growth is minimal) will support the British currency.
Meanwhile, the dollar is depreciating amid general skepticism about the Federal Reserve's monetary tightening in the foreseeable future. The members of the Fed "convinced" the market that the abrupt growth of key macroeconomic indicators in the United States (primarily inflation) will be temporary - in their opinion, the upward momentum will begin to fade by the end of this year. Fed Chairman Jerome Powell once again announced last week that the central bank will allow the economy to "overheat" and will not resort to retaliatory measures. His colleague - Christopher Waller - in turn added that the Fed members will "only welcome" the excess of the two percent inflation rate, but will not allow it to accelerate to the three percent level. Other representatives of the Fed voiced similar rhetoric. In other words, the central bank has clearly outlined its position: the Fed does not intend to curtail QE and (even more so) raise the interest rate, despite the growth of key macroeconomic indicators. Point. This fact puts background pressure on the greenback, which has only been increasing lately.
From the technical point of view, the pair is heading towards a strong resistance level of 1.4050 (the upper line of the Bollinger Bands indicator on the weekly chart). The upward momentum may subside in this price area – in this case, it is advisable to play on the downward correction to the upper limit of the Kumo cloud on the daily chart (around 1.3950). In the short term, the longs are the priority: the upward momentum is strong enough, and the dollar is too vulnerable to organize a counterattack. The target of the upward movement is the aforementioned mark of 1.4050.