GBPUSD – strong seasonal pattern. Our expectations

Who are the main factors influencing the pound?

Pent up savings

The UK ended its stay at home order on Monday this week. With 50% of the adult population now being vaccinated, COVID-19 infections falling, and expectations of more easing of COVID-19 containment measures the stage is set for some of the pent up savings to be spent. Deutsche bank estimate that they are at around £160 billion which is around 12% of the UK’s GDP output in pent up savings.

Remember the return of the consumer is expected across all major developed countries and is not unique to the UK.

A more upbeat Bank of England

The latest Bank of England minutes were more upbeat. There was no obvious concerns about the rise in gilts. The BoE did not follow the RBA and the ECB by speeding up the pace of purchases. They were more like the Fed and content to see rising yields as a reflection of better market conditions. There was no talk of negative interest rates and although the £ did not rally strongly out of March’s meeting (unlike Feb’s BoE meeting) the next logical move for the BoE is tapering of bond purchases and expectations of rising interest rates. Interest rate hikes may still be a long way off with some economists seeing no change until 2026.

Strong seasonals for the GBP

The GBP tends to have a very good April. This is reflected over the last 15 years with gains in 12 of the last 15 years during the month of April for cable. 

The technical picture shows a breakthrough

The GBPUSD chart shows that quotes are returning inside the stable uptrend channel. There is a break of the flag formation confirming the trend, as well as a break above 50 MA. Correction to 38.2% fibo level and rebound after that is also confirmation of the long trend. We are currently witnessing a diagonal resistance test, a break will activate the bulls for more aggressive purchases to the previous top in the area around 1.4230. A break in the level is likely to lead to a rise in prices to a weekly resistance at 1.4380.

Alternatively, if closing today’s or tomorrow’s bar below 50MA and below the diagonal support of the main trend, it will lead to the closing of long positions and re-test of 38.2 at 1.3700. If the level is successfully overcome, the next strong support is 50.0% fibo at 1.3546.