4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 35.0173
The British currency paired with the US currency again rushed up in trading on Wednesday, December 23. We will talk about the possible causes and the "foundation" a little later, and here we will deal with the "technique". After a short stay of the price below the moving average line, the pair returned to the area above this line, thus, the upward trend has been restored. In the near future, the pound may update its 2.5-year highs, as well as continue to rise in price in pair with the dollar. We once again conclude that the pound is extremely overbought and even if the UK and the European Union manage to agree on a trade agreement by some miracle, it is still already taken into account in the current exchange rate of the pound. If it is reported that a trade deal is ready, and both parliaments ratify it before January 1, then the pound may again begin to fall because it is impossible to get more expensive all the time on the same factor. At what is still very doubtful at this time. After all, if you calculate that the pound has been growing non-stop since the end of September, it has grown by 9 cents during this time. Of course, you can blame everything on the weakness of the dollar, because the euro is also growing all this time. But finding the reasons why the dollar is getting cheaper is even more difficult than finding the reasons why the pound is growing.
"The deal is ready." That's what Sky News correspondent Joe Pike wrote on Twitter, citing his sources close to the British Prime Minister. This message alone was enough for the markets to resume buying the British currency. This is all you need to know about the logic and validity of the reaction of the markets to the "foundation". We remind you that over the past 4 years, the pound sterling has repeatedly risen in price solely on rumors, speculation, hopes, and faith. Each time, after expectations were not met, the fall in the pound's quotes was much stronger than the previous growth. Perhaps Brussels and London will agree eventually. It may even happen in the near future, however, it is unlikely until December 31, 2020. After all, we do not deny that the parties can agree with each other. The only question is that time is catastrophically short and all possible deadlines have already been exceeded. For example, the European Parliament made clear last week that it was ready to agree to an emergency meeting on December 28 if the deal itself was agreed before December 20. It is understandable, the document, which will contain several hundred pages and determine the relationship between the Bloc and the Kingdom in the coming years should be studied in as much detail as possible. However, this deadline has also been exceeded. Thus, even if a Sky News journalist does have truthful information, this still does not mean that from January 1, London and Brussels will have relations based on this deal. By the way, there were no official statements from either side. So it turns out that sources close to Boris Johnson are aware of what is happening, but no one wants to make an official statement? In any case, now information regarding Brexit will be received every day.
However, another source close to the negotiation process, but at the same time far from 10 Downing Street, says about the EU's proposal to continue negotiations in 2021. According to this source in the EU, the negotiations on Tuesday again ended without a result. It is reported that the issue of fishing in British waters remains the most acute, but it is not reported whether the parties were able to reach a consensus on other issues? For example, on the issue of fair competition or dispute resolution. Recall that the entire list of issues on which there were "serious disagreements" is quite large. And not once in recent weeks has either Michel Barnier or David Frost said that this or that issue has been successfully resolved. The EU's chief negotiator only said that "differences on the fisheries issue remain difficult to overcome, and the UK is not yet moving enough towards the EU to conclude a fair deal on fisheries". In general, it is now completely unclear at what stage the negotiation process is. It is completely unclear what the parties agreed on and what they did not agree on. It is unclear whether the deal will be completed in 2020. But the pound sterling still resumed growth. Well, one thing is for sure: in the next few days, everything will be decided for sure. Either the EU and Britain agree on an extension of the "transition period", or sign the deal "retroactively" and continue negotiations in 2021, or declare a complete failure (unlikely). We still believe that the parties will not have time to ratify the agreement this year, so negotiations are likely to continue next year.
Meanwhile, in the UK, not only the economic and political situation but also the epidemiological situation continues to be serious and tense. Recall that on Monday, a new strain of "coronavirus" was announced, which is 70% more contagious than usual. Yesterday, it became known that the UK post office stops sending letters and parcels to Europe due to a new strain. Maybe the new vaccines will cope with the new strain as well as with the usual "coronavirus", but there is also no denying the danger of a strain that is almost twice as contagious. Again, even if no one dies from the new strain at all, if half the country gets sick, the economy will be paralyzed, and the medical system may collapse. Therefore, the danger of a new strain is not how many people will die (although this is also the case) from it, but in what consequences it will cause for the economy. In the UK, quarantine measures have already been tightened, which means that the economy may contract again in December and January.
The average volatility of the GBP/USD pair is currently 189 points per day. For the pound/dollar pair, this value is "high". On Thursday, December 24, thus, we expect movement inside the channel, limited by the levels of 1.3297 and 1.3675. The reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 1.3428
S2 – 1.3367
S3 – 1.3306
Nearest resistance levels:
R1 – 1.3489
R2 – 1.3550
R3 – 1.3611
Trading recommendations:
The GBP/USD pair on the 4-hour timeframe is now in a new round of upward movement. Thus, today it is recommended to keep long positions open with targets of 1.3611 and 1.3672 until the Heiken Ashi indicator turns down. It is recommended to trade the pair down again with the targets of 1.3367 and 1.3306 if the price is fixed below the moving average line. In general, now the "swing" has begun again. Not a good time to trade.
The material has been provided by InstaForex Company - www.instaforex.com