4-hour timeframe
Amplitude of the last 5 days (high-low): 118p - 54p - 118p - 132p - 126p.
Average volatility over the past 5 days: 91p (average).
The British pound showed a real collapse on the first trading day of the week and month, losing almost two cents against the US dollar in less than a day. Well, we foresaw this scenario. We have repeatedly pointed out the fact that, from a fundamental point of view, the British currency's growth is not completely justified. In the last two trading days, it was connected, with NOT changing the key rate by the Bank of England, NOT changing the balance of power when voting by the monetary committee of the British regulator, and also amid the approaching Brexit, which a certain part of traders and investors still consider very a positive development for the UK. However, in fact, nothing positive for the UK economy has happened in recent days. If the British prime minister was not Boris Johnson, who seems to have decided to completely and completely adopt the behavior of his "elder brother," then the pound could probably have started the month more calmly. However, Johnson managed to make some very important statements during the weekend and on Monday, so traders rushed to get rid of the British pound with the opening of trading. We have already mentioned the main reason why the pound may continue to fall in price throughout 2020, and it has not changed - this is a very likely failure in the trade negotiations between London and Brussels. Johnson confirmed the high probability of just such an outcome through his statements.
Johnson, who is due to speak to entrepreneurs today, February 3, may declare (according to many media reports) that after leaving the EU, the UK will not follow EU standards and comply with rules on environmental protection, workers' rights and government subsidies. According to insider information that some periodicals provide, Johnson wants to get a trade deal from the EU, like with Canada, or at worst, like with Australia. In essence, this means that the British prime minister wants to get an agreement only in the field of trade, having no obligations to Brussels in other areas and spheres of life. Representatives of the EU, in particular Michel Barnier and others, have repeatedly stated that the UK, firstly, will not be able to enjoy all the EU membership preferences outside the bloc, and secondly, after Brexit, it will have to adhere to EU rules and standards if it wants to get a trade deal. However, Johnson makes it clear that he is ready to completely withdraw from negotiations that have not even started and will begin no earlier than March 3, if he understands that London cannot get the trade deal that he wants. If the parties fail to make a deal, then trade between them starting in 2021 will take place according to WTO rules, that is, with customs duties. The agreement between the EU and Canada implies the absence of tariffs and duties on most goods, but also the presence of customs and VAT checks. That is, in other words, Johnson wants to completely remove Britain from the jurisdiction of Brussels, and Brussels wants to maintain maximum influence on Britain by signing a profitable trade deal with London. In this situation, one cannot even say who is right and who is not. Thus, we are simply forced to state a fact: Johnson's desire to rid the United Kingdom of the influence of the EU may be remarkable, but the absence of a trade deal will be another blow to the British economy. And if the UK economy gets another blow, then all its macroeconomic indicators will again begin to slow down and almost certainly pull the British currency down.
Well, how can I not mention the statement of the President of the European Commission, Ursula von der Leyen, that the EU is well prepared for the "hard" Brexit. If the parties fail to agree on all aspects of the agreement (which, in the EU's opinion, should not only be "commercial"), and Boris Johnson will not change his mind about the terms of the transition period, then, in essence, a hard Brexit will happen, which for at least two years, the British Parliament, the European Union parliament tried to avoid, and in the end it is he who now has the greatest probability of implementation. According to Ursula, the UK, which exports half of its goods to the EU, will suffer significant financial losses. "Citizens Rights, Financial Agreement, Island of Ireland. We have already taken care of all this. We (the European Union) are in a very strong position for the upcoming negotiations," said von der Lajen. However, Johnson believes that he is in a strong position ... And how strong is Johnson's position, currency traders show all Monday, getting rid of the pound ...
The pound continues free fall. High probability of resumption of a strong downward trend. From a technical point of view, it is difficult to draw any conclusions now, since the last three days we have been seeing strong movements without pauses and corrections, therefore, the Ichimoku indicator and others do not have time to respond to what is happening.
Trading recommendations:
GBP/USD has started a downward trend. Thus, selling the British pound is currently relevant with a target support level of 1.2894. The pair's purchases can again be considered if the price returns to the area above the Kijun-sen line with the target of 1.3283. All targets are quite distant, and the price makes sharp turns. Extra caution is recommended when opening any positions.
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