25.05.202117:40 Forex Analysis & Reviews: Seesaw of GBP/USD: sterling unable to determine its trajectory

Yesterday, the UK House of Commons conducted parliamentary hearings on the Bank of England's monetary policy statement. The members of the rate-setting committee speak in front of the Exchequer's committee on a quarterly basis. The officials answer deputies' questions to clear up the vision of the domestic economy. Besides, they account for their votes at a recent policy meeting. Bank of England Governor Andrew Bailey, Deputy Governors Ben Broadbent, Jon Cunliffe, David Ramsden and chief economist Andy Haldane spoke at the hearings yesterday.

Ahead of this event, the pound sterling was trading mixed. On Friday, GBP/USD buyers made another failed attempt to conquer 1.42. Afterwards, the price reversed 180 degrees, heading rapidly for 1.41. The currency pair has been trading following such a seesaw for a week. As soon as the sterling bulls reach the target of 1.4200, traders fix profits and enter the market with selling. However, when the bears enter the 1.40 zone, the situation is like a mirror. Traders close short positions and open long ones. As a result, the pair is treading water within a 100-pips trading range.

Traders need a convincing information background which either will help the buyers fix the price above 1.4200 or will trigger sell-offs of the sterling, dragging GBP/USD down below the target of 1.4100. This catalyst should be related either to the prospects of monetary policy or the prospects of the Brexit implementation. The Bank of England officials did not unveil any signals of QE tapering or extending/expanding. Therefore, after some price gyrations traders finished trading on Monday at 1.4152, the same level where they opened a new trading week.

Likewise, today traders cannot determine a further trajectory. Once again, after 1.4200 had been tested, the price reversed downwards creeping towards 1.4100. Such a seesaw could be used for a short-term trading. Indeed, the price has been firmly stuck inside the range of 1.4090 to 1.4230. GBP/USD has been trading this way since May 17, gyrating inside its borders. However, the outlook is uncertain when speaking about the medium-term and long-term prospects.

Let's look at a weekly chart. GBP/USD has been trading higher since early May. Nevertheless, every consequent bullish candle in a weekly chart is shorter than the previous one. It indicates waning bullish momentum. Under such conditions, it is risky to plan medium-term and long-term buy positions as the buyers are not able to fix the price above 1.4200. At the same time, short positions look also unreliable. First, GBP/USD is still following the overall uptrend, though it is fading. The US dollar index has got trapped at around 89, trading under pressure with seldom climbs to the levels just below 90. It proves that demand for the greenback is muted that allows GBP/USD buyers to moderate downward waves. Second, a lot of fundamental factors (such as macroeconomic reports, the coronavirus dynamic in the UK, stronger hawkish expectations) are in the pound's favor. All in all, GBP/USD has to trade inside a wide range.

Speaking at the UK Parliament yesterday, the Bank of England Governor excluded a rate cut to the negative territory. According to the policymaker, the recent trends in the key macroeconomic metrics, including inflation, suggest that it does not make sense to soften monetary policy. This clear-cut stance provided the sterling with some support. In fact, the market expected more hawkish hints. For your reference, the UK CPI has been growing for three months straight in annual terms. According to the fresh data, the CPI surged to 1.5% that is the fastest consumer inflation since March 2020. Besides, the CPI also rose 0.6% on month, the highest mark in the recent 12 months. Commenting on the inflation dynamic, the Bank of England leader said that the central bank would not allow inflation to stay above the target level for long. Earlier, Deputy Governor Ben Broadbent said directly that gradual tightening of monetary policy could be on agenda under certain conditions. Citing the policymaker, the regulator needs clear signs of inflation acceleration towards the target level.

Traders were anticipating straightforward hawkish signals. Actually, they got to know cautious and blurred phrases which did not please either the bulls or bears. To sum up, speaking in the British Parliament representatives of the Bank of England acknowledged a recovery in the national economy. On the other hand, they admitted that such a recovery cannot be termed well-balanced. In particular, Jon Cunliffe pointed out that the regulator would not tighten monetary policy until it is certain about progress in scaling back spare capacities. Besides, the focal point for the central bank remains the labor market.

In other words, the members of the UK regulator disappointed GBP/USD bulls, but not at that degree which could invite the bears to the market. The currency pair made a circular move and returned to the previous level.

Amid the current fundamental picture, GBP/USD is trading in the flat market at 1.4090 – 1.4230. Weakness of the US currency does not enable the bears to develop the overall rapid downtrend. The mixed rhetoric of the Bank of England does not allow GBP/USD bulls to fix at about 1.4200. When the price is approaching the lower border of the above-said corridor, we can plan long positions. Alternatively, when the price is approaching the upper border, short positions towards 1.4100 would make sense accordingly.