Lots of moving coins for GBP / USD
The UK and US have a lot to do these days which makes it even more difficult to determine the direction of the GBP / USD:
Resurgence of the coronavirus
The markets seem to be worried. Not only has the UK seen the number of new cases reach their highest levels since late January, but the delta variant could threaten to push the final stop on the road to recovery even further than in mid-January. July. So far, the United States has not had to deal with the delta virus, again. However, are there enough people vaccinated, in either country, for it to affect their economies?
The BOE has already started to shrink, having reduced the amount of its bond purchases to 3.4 billion pounds per week. As in any central bank committee, there are doves and hawks. BOE Governor Andrew Baily said he was not worried about inflation close to 4%. On the other side is BOE chief economist Haldane, who voted to reduce the total amount of bond purchases at the last meeting. However, his opinion no longer matters as he leaves the MPC. In the United States, the Fed has certainly just started talking about tapering. The US Federal Reserve is currently buying $ 120 billion worth of bonds per month! The Tomorrows Non-Farm Payroll report, and general employment data going forward, will go a long way in deciding whether or not the Fed will start shrinking in the coming months.
Joe Biden’s Infrastructure Program
A bipartisan deal was struck last week that will spend nearly $ 1.2 trillion over the next 8 years on new “physical” infrastructure projects, such as roads, bridges, pipelines and broadband internet. The bill will be paid by the sale of strategic oil reserves, the proceeds of the 5G spectrum auctions and the reorientation of Covid funds, among others. The most important part of this bill is that there will be no tax increase. However, Joe Biden is also seeking to separately pass a “human” infrastructure bill, which includes such things as climate change, child care and education. Republicans balk at the idea of a human infrastructure plan, but a bill could be passed through reconciliation, in which the Senate would only need 50/50 votes, with the vice president having the vote preponderant. The point: more spending equals more stimulus!
EU / UK border dispute Northern Ireland
The EU has just granted the UK a 3-month grace period before having to start following the Brexit deal to control chilled meats at the border (the sausage war). Both parties need to come to an agreement on this issue in the coming months or it could result in additional tariffs.
These complex issues could affect the direction of the GBP or the USD. The GBP / USD 240-minute chart shows the pair formed a rounded high near February highs (not shown) and broke lower on June 16.e, on the more hawkish outcome of the FOMC. GBP / USD fell to trendline support and rebounded to the 61.8% Fibonacci retracement level from June 16 highse June 20 lowe, nearly 1.4000. In doing so, the pair formed a flag formation and are currently on their way to the flag target near 1.3670. Today the pair broke below June 16e low of 1.3786. If the GBP / USD pair closes the day below this level, it will improve the pair’s chances of reaching its target.
Source: Tradingview, FOREX.com
The next level of support is just support below target near 1.3664 and then more horizontal support at 1.3571. The horizontal resistance above is at 1.3864, then recent highs and the psychological round number at 1.4000. Above there is a peak from June 15e at 1.4034, then horizontal resistance at 1.4071.
With all the economic, political and social issues to consider in the US and UK this summer, the direction can be difficult to determine in GBP / USD. However, when in doubt, turn to the cards. Currently, the charts show 1.3670. But don’t forget that tomorrow is non-farm payroll! If the data on jobs is significantly lacking, things can change quickly!