GBP/USD. "Ultra-dovish" performances by Jerome Powell and Andrew Bailey. A new political scandal in the United States.

4-hour timeframe

Exchange Rates 20.06.2020 analysis

The British pound also continued to fall in quotes throughout the past working week. Thus, if a week ago the euro and the pound were growing synchronously, now they are falling synchronously. And it turns out that with a high probability, the reasons for the movements of both pairs in the last three weeks are hidden in the US currency. That is, it was the US dollar that first fell in demand, and now it is growing. In principle, we initially said that the euro and the pound, from our point of view, are growing quite unreasonably. The reasons could only be technical since the pair can not constantly move only in one direction. Therefore, there must be periods of growth. However, in the case of the British currency, everything is much more complicated, since it is one of the weakest and most exposed to external shocks of currencies in recent years. In the United States, as we have said many times, there are more than enough problems now. Rallies and protests based on the racist scandal do not subside, the country is sliding into a serious political crisis that threatens to turn into a constitutional one. Future presidential elections threaten to become the most scandalous in recent decades. Donald Trump is losing 13% to his Democratic opponent, but for some reason, it seems that he has not yet said his last word. China and the US continue to move confidently towards the “cold war” or, at least, a new trade conflict. In general, there are plenty of those that can potentially harm the US dollar. However, all these topics are what is called “general”. They are of great importance for the country, its economy, foreign economic policy, and currency exchange rate, but not in the short term. They are “dangerous” but not “destructive” right now. But in the UK now everything is exactly the opposite. Brexit, which is now in its fourth year, continues to ruin the British Treasury. Although at this time, Britain continues to trade with the European Union without duties and any restrictions. However, from January 1, 2021, it will trade under WTO rules, which will mean another blow to its economy. Thus, the economy of the Kingdom has suffered in recent years without the “coronavirus” and another global crisis. That is why we believe that in the long term, the pound has only one road to the south.

Indirectly, these assumptions were confirmed last week by the Bank of England and its Governor, Andrew Bailey, personally. With this, both the regulator and its head tried to present it under the “sweet sauce”. The Bank of England simply expanded the quantitative easing program by 100 billion pounds and brought its volume to 745 billion. At the same time, most traders and analysts continue to stand their ground – sooner or later, the British regulator will have to resort to negative rates, as has long been practiced in the European Union. Andrew Bailey himself said that negative rates are not a panacea and an inevitable future for the UK. He believes that this issue should be seriously studied. This line reads something like “we want to lower the key rate, but we are afraid of this “ultra-soft step”. Also, the head of the Bank of England said that the fall in GDP in the first and second quarters will probably be 20% instead of -27%, which was expected in May. Andrew Bailey believes that there are some signs of recovery in economic activity at the moment, with the inflation curve set to fall to a very low level.

Meanwhile, in the United States on Friday, the third speech of Jerome Powell, head of the Fed, took place this week. And his rhetoric was also “dovish”. Powell said that the recovery of the American economy will be long and difficult, “there will be no quick solution to the problem”. “Lives and livelihoods have been lost and great uncertainty looms,” Powell said. As before, the head of the Federal Reserve reiterated that the latest statistics on jobs and consumer spending should not be overly encouraging, and the full recovery from the crisis will depend on the results of the fight against the “coronavirus”.

At the same time, a new political scandal continues to flare up in America, based on the publication of a book by Trump’s former adviser John Bolton, in which he describes many of the president’s actions, his incompetence, and unfitness for the role of leader of the nation. According to the latest information on this topic, John Bolton wrote in his book that Donald Trump is completely unfit to be president. Bolton believes that “all the actions of the president were aimed only at his re-election, and all the strategic considerations and interests of the country in the long term took a back seat”. Bolton said that during a meeting with North Korean leader Kim Jong-un in 2018-2019, Trump was more concerned about the photos and media reaction to his meeting than the results of the negotiations themselves. Also, according to the former presidential adviser on national security, Trump had different attitudes to world leaders. For example, he respected Boris Johnson and the Prime Minister of Japan Shinzo Abe, with absolutely no respect for the President of France Emmanuel Macron. Bolton’s book, “The room where it happened: a White House memoir,” is expected to go on free sale on June 23. At this time, the administration of the president is trying to impose a ban on the distribution of this book, considering that it is full of secret information that a former employee of the White House has no right to publish. A criminal investigation may be opened against John Bolton himself.

We believe that such a step by the former adviser to the president is a confrontation with the president himself. Quite often, high-ranking officials in the past publish books, autobiographies, memoirs about their past work, as well as about the work of other high-ranking officials. However, this is often done when this information can no longer hinder or harm anyone’s career. Bolton, after almost a year since he was fired, has decided to publish a book that directly affects the current US president and could seriously prevent him from being re-elected in November 2020. So it seems that Bolton started writing the book immediately after his dismissal and has someone’s support. And the support can be anyone. Starting from Joe Biden and the Democrats, ending with China, which is ready to take any measures as long as the next US President is not Trump. Thus, we continue to find a lot of evidence that a targeted war is being waged against Trump so that he does not win the election. However, it is difficult to blame all his opponents for this, since Trump himself made a huge number of mistakes during his presidency. And his main mistake is an absolute inability to work with people, subordinates, oppositionists, leaders of other countries, and so on. For Trump, all those who support him and listen to him are “wonderful people”, all those who do not are “fools”.

Trading recommendations:

In the 4-hour timeframe, the pound/dollar pair continues to move down. Thus, it is now recommended to consider short positions with the goals of 1.2268 and 1.2232 levels. It is recommended to return to the purchase order not earlier than when the Ichimoku cloud is reached by traders, but this development is not expected soon.

Source: https://www.instaforex.com/forex_analysis/253315/

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