4-hour timeframe
Amplitude of the last 5 days (high-low): 52p - 89p - 118p - 54p - 118p.
Average volatility over the past 5 days: 87p (average).
After a slight upward correction, the British pound resumed the downward movement on Wednesday, January 29. No important macroeconomic reports have been made today in either the United States or the United Kingdom. Britain is on the verge of leaving the European Union; the process began 3.5 years ago. The last vote on Brexit (pure formality) will take place in the European Parliament today, and in the European Council (the same formality) tomorrow. Thus, we can assume that all the formalities have already been settled and the UK can only wait until January 31 and officially set foot in the "transition period". Another extremely important event will take place until January 31 - a meeting of the Bank of England, within which the key rate can be lowered. This is a really important event, as the meeting will be the last for the head of the bank, Mark Carney. Is it worth mentioning once again that the BoE's decisions can have a strong impact on the British currency, on its rate paired with the US dollar? Also, the movement of the currency pair can be seriously affected by the Fed's meeting today, from which, however, traders expect much less than from the BoE meeting. Nevertheless, both of these events could potentially turn things upside down. We have long been waiting for the British currency to resume the downward trend, as we continue to believe that the UK economy is now experiencing serious problems. And most importantly, it will continue to experience them throughout 2020. What will happen after 2020, for example, if a trade agreement cannot be signed with the European Union, I don't even want to think now. In any case, even if the US economy begins to experience problems (again), we believe that almost any currency will look stronger together with the British pound at this time.
We have already said that the transition period essentially does not change anything for the UK and its economy. All conditions of coexistence with the European Union will remain the same. The only thing is that Britain will lose the opportunity to take part in the EU's administration. Simply put, the British deputies of the European Parliament will leave their seats. At the moment, the UK office in the European Parliament is one of the largest and has 73 seats. Accordingly, 73 seats will be empty in the Parliament on February 1. It has already been decided that 27 deputy mandates will be divided between EU member states, and another 46 will remain unoccupied and will be available for new members of the EU. Of the 27 seats that will be distributed among the participants of the bloc, it is expected that five will get France and Spain, three each - Italy and the Netherlands, one each - Croatia, Finland, Slovakia, Romania, Poland, Denmark, Austria, Sweden, Estonia.
Meanwhile, the question of further negotiations between London and Brussels regarding trade relations after the completion of Brexit is becoming increasingly acute. Michel Barnier just recently gave an extensive interview, which highlighted the most important issues and contradictions in the negotiation process between the countries. The main problems, according to the EU's main negotiator, are Britain's wrong expectations ("the British will not be able to use the privileges of EU membership while outside the EU"), as well as tight deadlines (Boris Johnson does not want to extend the transition period and, accordingly, you need to reach a deal in 11 months). Barnier also said that the EU will closely monitor the implementation of the minutes of the exit agreement. The main difficulty of this deal is that Northern Ireland will have access to European markets over the next four years without tariffs, quotas, inspections and controls. At the same time, Northern Ireland will leave the EU together with Great Britain and, accordingly, a border should appear between the EU and the UK. According to the plan developed by European and British politicians, there will be no tight border between Ireland and Northern Ireland, so as not to provoke riots and popular uprisings among the inhabitants of the island, which barely managed to be repaid in 1998. Thus, a semblance of a border will pass along the Irish Sea, that is, between the island of Ireland and the rest of Great Britain. This is a very subtle mechanism that has a whole host of inconsistencies, various loopholes and places where it can frankly break. The British need peace of mind on the island of Ireland, respectively, London can turn a blind eye to some points, just to prevent unrest on the island. Of course, the EU does not like this position and Barnier warns the British that all agreements must be implemented exactly.
From a technical point of view, the downward movement has now resumed. Therefore, the downward trend persists. The Ichimoku indicator continues to indicate a movement up and down and allows you to trade lower. A strong support area is near the support level of 1.2963. The pound/dollar pair has rebounded from it at least three times.
Trading recommendations:
GBP/USD is trying to resume a downward trend. Thus, traders are advised to resume selling the euro/dollar pair while aiming for 1.2963 and 1.2935. Purchasing the pair can be considered if the price returns to the area above the Kijun-sen line with targets at 1.3113 and 1.3176. Tonight, it is recommended to be extremely careful with any positions, since the reaction of traders to the Fed meeting can be unpredictable.
Explanation of the illustration:
Ichimoku indicator:
Tenkan-sen is the red line.
Kijun-sen is the blue line.
Senkou Span A - light brown dotted line.
Senkou Span B - light purple dashed line.
Chikou Span - green line.
Bollinger Bands Indicator:
3 yellow lines.
MACD indicator:
Red line and bar graph with white bars in the indicators window.
Support / Resistance Classic Levels:
Red and gray dashed lines with price symbols.
Pivot Level:
Yellow solid line.
Volatility Support / Resistance Levels:
Gray dotted lines without price designations.
Possible price movements:
Red and green arrows.
The material has been provided by InstaForex Company - www.instaforex.com