Chapter 22 06/13 GBPUSD: Dive! Is There Still Room for Rally after the Bears Rush Ahead of Time?
Abstract: The GBPUSD once again came under bearish pressure in the New York session on Monday and fell below 1.2500. However, during the European session on Tuesday, the GBPUSD rebounded above the level of 1.2550. Data from the UK showed that wage inflation continued to rise in May, boosting the GBP.
Fundamentals
On Tuesday, data released by the Office for National Statistics showed that the UK unemployment rate fell to 3.8% in the three months to April. Market expectations were for a modest increase. Average earnings growth, excluding bonuses, rose to its highest level except for the COVID-19 pandemic period.
Average wages excluding bonuses rose at an annual rate of 7.2% in the three months to April, compared with expectations of 6.9%.
The unexpected tightening of the UK labor market in April aggravated the inflationary pressure concerned by the Bank of England (BOE) and pushed the GBP higher. After data released in the UK showed that wage growth accelerated, the GBP soared above the intraday high of 1.2570.
With the acceleration of wage growth in the UK, the yield of UK government bonds will rise to the highest level since 2008, which will make it more difficult for the BOE to curb inflation. The market currently predicts that the BOE will almost certainly raise interest rates in June, and the interest rate will reach a peak of 4.75%.
Market Watch: the data released on Tuesday showed that the labor market in the UK is "extremely tense" and the GBP will continue to be supported in the short term. In the three months to April, the average income growth accelerated, and the high wage inflation means that the possibility of the BOE cutting interest rates before 2024 is very low, although they are not convinced that this will lead to several interest rate hikes as expected by the market.
At the same time, the GBP still faces the risk that the BOE's interest rate is expected to be lowered in the future, but in the short term, "it is difficult to reverse the bullish trend of the GBP" because the data continues to show that the BOE will raise interest rates further.
However, we have recently noticed that the expected increase in further interest rate hikes will not necessarily lead to a higher GBP as usual. On the contrary, the prospect of rising bank interest rates increases the risk of the UK economic collapse, and sometimes it will put pressure on the GBP. However, Tuesday's data showed that the economy was more tolerant of raising interest rates than expected.
Technical Analysis
The GBPUSD pulled back sharply in a good upward trend on Monday, even though there was a hint of bears running ahead of time. However, after the initial callback, it was re-bought below the key resistance area of 1.2500, which seems to make people feel that the bears are suspected of "diving".
At the same time, technical indicators reflect the willingness to make a bullish breakthrough. The RSI is higher and above the neutral mark of 50, while MACD gradually strengthens above the 0-axis. However, new buying can only be activated if it extends significantly above the resistance trend line and the level of 1.2600.
If this is the case, the bulls may push the asset directly to the May high of 1.2678, and then continue to rise to the level of 1.3000, which is a 61.8% Fibonacci retracement of the downward trend of 1.4248-1.0324.
However, we are not optimistic that the GBPUSD will continue to rise; On the contrary, the recent rebound of this asset is about to reach its extreme value, because the institutional position is not completely closed. At the same time, the rebounding structure is about to reach the D point 1.2657 of the "butterfly pattern", which is also the potential reversal level of bears.
Overall, despite the frustrating start of this week, it seems that the GBPUSD has some additional bullish strength. Only when bulls continue to break through 1.2680 can they continue the upward trend to a new high. Otherwise, the exchange rate trading will face a sharp pullback after the potential reversal level. It is recommended to go short at the highs.
Trading Recommendations
Trading direction: Short
Entry price: 1.2650
Target price: 1.2337
Stop loss: 1.2850
Deadline: 2022-06-27 23:55:00
Support: 1.2577, 1.2555, 1.2487
Resistance: 1.2613, 1.2650, 1.2680
