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Market Analysis – GBPUSD

The Pound is trading at a decline during this morning’s Asian and European Session against the US Dollar, consolidating around 1.3677. The asset showed a slight decline during the Asian Session but we witnessed a higher level of volatility as we entered the European Session. In the last 3 hours we have seen the asset decline by almost 60 pips in favour of the US Dollar and break below the major support level of 1.3718.

The instrument continues to be in demand amid a successful vaccination campaign in the UK, as well as expectations of a partial lifting of quarantine restrictions as early as next week, but the strength of this momentum has gradually decreased at time when the US Dollar builds momentum. Some support for Pound on Thursday was also provided by strong macroeconomic publications from the UK. Markit Construction PMI in March rose sharply from 53.3 to 61.7 points against the forecast of growth only up to 54.6 points.

This specific sector is growing at the fastest pace since 2014, helped by the gradual easing of quarantine restrictions. The largest contribution to the increase in demand was made by a temporary reduction in government taxes on construction. The volume of work on the renovation of offices, shops, and restaurants, which are preparing for the upcoming opening, also increased. On the negative news, it is worth noting a drop in the number of vaccinations given due to problems with the supply of AstraZeneca drugs. In an effort to mitigate this problem, the British authorities began introducing the Moderna vaccine.

The Dollar continues to be under pressure after the publication of the minutes of the March meeting of the US Fed. Investors expected to find in them hints of the timing of tightening monetary policy, but were disappointed. The protocols noted that, despite the economic recovery, it will take a long time to achieve the target levels of employment and inflation, and only then can the increase in rates begin. Also, officials said that the reason for adjusting monetary policy can only be “real results” achieved by the economy, but not their forecasts.

The US administration’s intention to increase the corporate tax from 21% to 28% also contributes to the US Dollar weakening over the past few trading days. However, President Joe Biden has already announced that he is ready to discuss a smaller increase. Experts point out that it would be more convenient for business to raise the tax to 25%. Initial jobless claims data released yesterday also disappointed investors. Instead of the expected reduction, the indicator increased for the second week in a row, this time from 728,000 to 744,000.

The asset this morning is growingly coming under immense pressure as the price continues to decline now for the fourth consecutive day, even as the US Dollar has at times declined against other currencies. Traders are paying close attention to the bearish breakout which formed this morning ensuring the price action does not correct back upwards. Further strain is being put on the Pound as regions across the world deepen fears of the UK based vaccine due to safety concerns and supply problems. Australia and the Philippines have limited use of the shot, the African Union dropped plans to buy it and Hong Kong has delayed its purchase.

Today, investors will be focused on the Quarterly Bulletin for Q1 2021, released by Bank of England. In addition, traders will also focus on the Halifax House Price Index for March. In terms of the US Dollar, traders are likely to be paying most of their attention to the US Dollar index and its price movement as no major announcement is due throughout the day. 

Resistance levels: 1.3760, 1.3800, 1.3857, 1.3924.

Support levels: 1.3700, 1.3650, 1.3600, 1.3552.




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