4-hour time frame
Technical details:
The upper linear regression channel: direction - up.
The lower linear regression channel: downward direction.
The moving average (20; smoothed) - down.
CCI: -125.3771
The British pound corrected to the moving average line again at the end of last week, but according to the current trend, it still completed the flat and rebounded from the movable and resumed the downward movement. Thus, we believe that there now are no visible obstacles to the resumption of a downward trend, the potential of which is huge. We still believe that the pound is in the "debt repayment" phase, therefore, it is able to renew multi-year lows this year and fall to $ 1.25 over the next month. The general fundamental background still remains in favor of the dollar despite the insufficiently strong reports on wages and Nonpharms in the States, as well as the weak ISM index of business activity in the manufacturing sector, since in the UK everything is much worse. It can be recalled that the Bank of England is preparing to lower its key rate, the UK economy continues to lose money due to Brexit and in any case will continue to lose it during 2020. Thus, there are much more factors for the further decline of the pound than for the opposite scenario.
On the first trading day of the week, there will be a lot of interesting and important publications for the GBP/USD pair. All of them will be released in the UK. Thus, traders will have another opportunity to verify the deplorable state of the British economy or, conversely, to refute this opinion. However, even a quick glance at today's publications, it becomes clear that, most likely, the first opinion will be confirmed. The GDP level in November is forecasted with an increase of 0%. It can be recalled that we have mainly witnessed either a zero increase in the main indicator of the state of the country's economy or even a negative one in the last few months. According to experts, industrial production in the UK in November will be -1.4%, and in monthly terms, the loss will amount to 0.2%. Further, manufacturing production should decline by 1.6% on an annualized basis, and an estimate of the growth rate from NIESR for December is likely to show a decrease of 0.3%. Thus, if real values are simply not higher than predicted, then it will be possible to state another failure for all publications today. Of course, due to the fact that the forecasts are extremely weak in all respects, it will be easier to exceed them, and in this case, the pound can even get a little support. But ask yourself, dear traders, if, for example, industrial production is reduced not by 1.4%, but by 1.0%, can this be considered an optimistic factor? The answer is obvious.
Thus, we are inclined to believe Mark Carney, who at his last speech said that the British economy needs incentives, rates can be lowered. The quantitative easing program is expanded, and even in this case all monetary policy instruments may not be enough to stabilize the situation. Of course, Carney also noted that both the banking system and the UK economy are ready for Brexit, however, what does this "readiness" mean? If the fact that the banking and financial systems just do not collapse, then this is not too good news. Most likely the UK economy will continue to decline in 2020. Therefore, the prospects for the pound remain uncertain.
Today, we are witnessing the resumption of a downward movement, as indicated by the Heiken Ashi indicator. The downward movement should now continue at least to the previous local minimum - 1.2910 since the bulls failed to start a new upward trend. The lowest linear regression channel has already turned down, which indicates a leisurely change in the long-term upward trend to a downward one.
The average volatility of the pound/dollar is 97 points over the past 5 days, which has a slight decrease, but at the same time remaining at a fairly high level. According to the current level of volatility, the working channel as of January 13 is limited by the levels of 1.2956 and 1.3150, and we expect to develop the lower border of the volatility channel by the end of today. The start of correction, as before, will be signaled by the Heiken Ashi indicator with a turn up.
The nearest support levels:
S1 - 1,3000
S2 - 1.2939
S3 - 1.2878
The nearest resistance levels:
R1 - 1.3062
R2 - 1.3123
R3 - 1,3184
Trading recommendations:
The GBP/USD pair resumed its downward movement. Thus, traders are now advised to sell the British pound with the target of 1.2956, as the mood in the currency market is "bearish" again. It is recommended to buy British currency no earlier than the return of the pair above the moving, but it should be remembered that even in this case, the fundamental background remains not on the side of the pound.
In addition to the technical picture, fundamental data and the time of their release should also be taken into account.
Explanations for illustrations:
The upper channel of linear regression is the blue unidirectional lines.
The lower channel of linear regression is the purple unidirectional lines.
CCI - blue line in the indicator regression window.
Moving average (20; smoothed) - a blue line on the price chart.
Murray levels - multi-colored horizontal stripes.
Heiken Ashi is an indicator that colors bars in blue or purple.
Possible price movement options:
Red and green arrows.
The material has been provided by InstaForex Company - www.instaforex.com