On Tuesday, business activity indices for May became known in many countries of the European Union, the United Kingdom, and the United States. In summary, business activity in European countries decreased, which led to a decline in demand for the euro and the pound. Nevertheless, unexpected news of the day came from the British Parliament, where several members of the Monetary Policy Committee spoke before the Treasury Select Committee. These speeches should have been included in yesterday’s event calendar.
Andrew Bailey answered the Committee’s questions. In particular, he stated that inflation in the United Kingdom has already reached a turning point (i.e., its peak value). Inflation in the services sector aligns with the central bank’s expectations. He assured the Bank of England would continue adjusting the interest rate to bring inflation back to the target level of 2%. However, additional tightening measures will be required if inflation shows signs of greater stability. According to Bailey, the labor market has begun to weaken slightly.
Bailey’s colleague, the Bank’s Chief Economist, Hugh Pill, stated that long-term inflation expectations align with the Bank of England’s forecast. However, he questioned why the regulator made errors in its calculations regarding the strength of inflation.
The prospects for the British currency remain unchanged after the speeches by several Bank of England members. Andrew Bailey allowed for stronger tightening, but the market did not fully understand the reference point for such tightening. Currently, the regulator is expected to raise the interest rate at most one or two more times. Are these additional tightenings, or is it referring to increases beyond them? The demand for the pound did not change after Pill and Bailey’s speeches, which is positive because the market is not ignoring the wave pattern that implies a decline in the instrument. Therefore, the decline may continue to the 18-20 figure range. Wave b can end as a corrective wave at any time, but the instrument’s decline should be much stronger.
I don’t see compelling reasons for the market to increase demand for the British pound soon. Britain consistently needs to improve its statistics, and the interest rate may stop rising in the coming months. Only Andrew Bailey knows at what pace inflation will fall, but he changes his forecasts every few months, usually toward an increase. The ECB in the European Union has also revised its inflation forecasts upward. All this tells us there will be a protracted struggle with high inflation rates. We must remember to reach 2% for another 1.5-2.0 years. The real possibility of quickly returning inflation to 2% lies only with the United States. However, in that case, the Federal Reserve will start lowering interest rates at the beginning of next year, which could significantly reduce demand for the dollar. And the market may start anticipating this factor in advance.
Based on the conducted analysis, I conclude that the upward trend phase has ended. Therefore, I recommend selling now, as the instrument has ample room for decline. Targets around 1.0500-1.0600 can be considered quite realistic. I advise selling the pair with these targets.
The wave pattern of the pound/dollar pair has long indicated the formation of a new downward wave. Wave b can be very deep since all recent waves are approximately equal. The failed attempt to break the level of 1.2615, which corresponds to 127.2% Fibonacci, indicates the market’s readiness for selling. In contrast, the successful attempt to break the level of 1.2445, equivalent to 100.0% Fibonacci, confirms this signal. I recommend selling the pound with targets around the 23 and 22 figures.
The material has been provided by InstaForex Company – www.instaforex.com
On Tuesday, business activity indices for May became known in many countries of the European Union, the United Kingdom, and the United States. In summary, business activity in European countries decreased, which led to a decline in demand for the euro and the pound. Nevertheless, unexpected news of the day came from the British Parliament, where several members of the Monetary Policy Committee spoke before the Treasury Select Committee. These speeches should have been included in yesterday’s event calendar.
Andrew Bailey answered the Committee’s questions. In particular, he stated that inflation in the United Kingdom has already reached a turning point (i.e., its peak value). Inflation in the services sector aligns with the central bank’s expectations. He assured the Bank of England would continue adjusting the interest rate to bring inflation back to the target level of 2%. However, additional tightening measures will be required if inflation shows signs of greater stability. According to Bailey, the labor market has begun to weaken slightly.
Bailey’s colleague, the Bank’s Chief Economist, Hugh Pill, stated that long-term inflation expectations align with the Bank of England’s forecast. However, he questioned why the regulator made errors in its calculations regarding the strength of inflation.
The prospects for the British currency remain unchanged after the speeches by several Bank of England members. Andrew Bailey allowed for stronger tightening, but the market did not fully understand the reference point for such tightening. Currently, the regulator is expected to raise the interest rate at most one or two more times. Are these additional tightenings, or is it referring to increases beyond them? The demand for the pound did not change after Pill and Bailey’s speeches, which is positive because the market is not ignoring the wave pattern that implies a decline in the instrument. Therefore, the decline may continue to the 18-20 figure range. Wave b can end as a corrective wave at any time, but the instrument’s decline should be much stronger.
I don’t see compelling reasons for the market to increase demand for the British pound soon. Britain consistently needs to improve its statistics, and the interest rate may stop rising in the coming months. Only Andrew Bailey knows at what pace inflation will fall, but he changes his forecasts every few months, usually toward an increase. The ECB in the European Union has also revised its inflation forecasts upward. All this tells us there will be a protracted struggle with high inflation rates. We must remember to reach 2% for another 1.5-2.0 years. The real possibility of quickly returning inflation to 2% lies only with the United States. However, in that case, the Federal Reserve will start lowering interest rates at the beginning of next year, which could significantly reduce demand for the dollar. And the market may start anticipating this factor in advance.
Based on the conducted analysis, I conclude that the upward trend phase has ended. Therefore, I recommend selling now, as the instrument has ample room for decline. Targets around 1.0500-1.0600 can be considered quite realistic. I advise selling the pair with these targets.
The wave pattern of the pound/dollar pair has long indicated the formation of a new downward wave. Wave b can be very deep since all recent waves are approximately equal. The failed attempt to break the level of 1.2615, which corresponds to 127.2% Fibonacci, indicates the market’s readiness for selling. In contrast, the successful attempt to break the level of 1.2445, equivalent to 100.0% Fibonacci, confirms this signal. I recommend selling the pound with targets around the 23 and 22 figures.
The material has been provided by InstaForex Company – www.instaforex.com
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