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Pound gains as the UK Government are trying to advert further panic

The media knows that negative headlines sell, and it doesn’t take a lot to whip up a frenzy of panic buying when the population is highly stressed. Any fundamental problems are being exposed and the UK government will have to get ahead of the next problems rather than be seen to be reactive.

GBPUSD Forex Analysis

The forex heatmap is not giving a definite bias towards flows either towards the risk-on commodity pairs or the risk-off safe-havens. The media however and especially the UK media is keen to promote the doomsday events that are unfolding especially around the UK petrol stations and within the food production industry. Brexit, COVID-19, and government policy have been blamed for the bottlenecks and supply chain disruptions. In the case of the energy firms going to the wall, yes, the government had placed a cap on consumer's bills which has meant the energy providers have lost money in this period of inflated energy prices at the wholesale end. But the policy was to protect consumers. Brexit had caused uncertainty and people had left the UK to return to their homelands, and the coronavirus pandemic accelerated that process. But as a sovereign nation, we can do something about the things that are under our control. The government can issue visas temporary or otherwise, it can provide subsidies or stimulus to sectors that are suffering. It can raise cash to pay for foreign workers.

Over the weekend there was an acceleration of what most local newspapers call an energy crisis. But the reality is that it was panic, and greed born out of fear. There is plenty of fuel we just need to moderate our behavior and our personal response. The government has said that it will grant ‘special visas’ for 5k foreign drivers as well as farmworkers to alleviate the labor shortage and one would imagine those visas would be extended if the needs must.

This week is again central bank heavy, where policy announcements from last week will be dissected and commentary added to hopefully give a clearer picture of what is going on.

There were no real policy changes from the Bank of England, but the perception is that the minutes of last week’s MPC meeting contained a notably hawkish message. Attention to today’s SPE speech will be directed for any possibility that Governor Bailey decides to ‘walk back’ some of the messaging from last week’s MPC meeting.

The ActivTrades sentiment indicator has moved into the extreme bullish zone, which is where I am usually looking to fade the retail direction. Currently, I am going along with their thinking, especially as the UK can control some things which will give pound traders confidence. Whereas the USA is about to spend the next few days discussing the Infrastructure Bill with a vote this week on whether to allow the US to default on its debts and responsibilities. There is no real reason for the US to default or for the government to go into shutdown but the uncertainty this week is enough for me to think the flows will be away from the greenback.

The GBPUSD price action has been focused on the demand zones around 1.3630 with 1.3755 as the most logical target for mean reversion strategies. The lack of clarity on the mechanics of a new coalition government in Germany is also helping the pound to appreciate against the euro, which is also giving the pound a boost across other pairs. If we get a decent close on the daily chart above the 1.3755 I will be looking for a possibility of a move to the 1.3900 level to take out some swing highs.

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