Fundamental analysis GBPUSD for 06.06.2022
Current dynamics
GBP/USD strengthens on Monday, compensating for Friday's losses. Despite good macroeconomic data from the US at the end of the last week, today's strengthening of sterling came thanks to major political headlines. A vote of confidence in the UK Prime Minister will take place today. A spokesman for Johnson's Downing Street office said: "The Prime Minister welcomes the opportunity to convey his position to MPs and remind them that when they come together and focus on the issues that matter to voters, there will be no more intimidation of political power."
Markets believe the vote will end months of speculation and allow Johnson's government to focus on political and economic priorities if Johnson receives a vote of confidence.
Despite the clouds surrounding the UK economy as a result of a surge in inflation, there remains optimism that the Bank of England will raise interest rates by 50 basis points in June, which could have a positive impact on the sterling.
For his part, a member of the Monetary Policy Committee explained that the Bank of England may need to raise interest rates further in the coming months to ensure that inflation returns to the desired target of two percent in the medium term.
As Bank of England deputy governor, John Cunliffe added: " It's now above pre-pandemic levels and now, of course, we have to make sure that the inflation we are seeing in the economy, I think most of it, but not all, comes from shocks that people understand externally - is not rooted in the economy."
Recently, many have been betting aggressively that the bank rate could rise to 2% by the end of the year, despite assurances from the Bank of England that such an outcome is unlikely. At the same time, MPC members have also highlighted that there are various circumstances in which inflation expectations and conditions in the economy may merit further increases.
As for the most important events that could affect the pair's performance, certainly, today's vote of confidence in the UK Prime Minister will be one of the important events, as will next Wednesday's PMI, while the Bank of England's interest rate decision next week will have the biggest impact on the pair's performance, as we could see big swings if the results are unexpected.
Support and resistance levels
On the 4-hour chart, the instrument is correcting in the middle band of the Bollinger Bands. And the price range has shrunk, which indicates the presence of corrective dynamics. The momentum chart is above the 100 level, which is giving sell signals. Envelopes indicator gives signals to sell.
- Support levels: 1,26525, 1,26125, 1,25750.
- Resistance levels: 1,25350, 1,25000, 1,24500, 1,24050.
Trading scenarios
- Long positions can be opened at the level of 1,25350, with a target of 1,25750 and stop loss 1,25000: Implementation period: 1-2 days.
- Short positions can be opened at the level of 1,25000 with a target of 1,24500 and stop loss 1,25350: Implementation period: 1-2 days.