4-hour timeframe
Technical details:
Higher linear regression channel: direction - up.
Lower linear regression channel: direction - sideways.
Moving average (20; smoothed) - down.
CCI: -84.9747
A strong downward movement for the USD continues on February 4, which was partially triggered by the statements of British Prime Minister Boris Johnson, but was brewing to a greater extent a long time ago, even after the pair took off to the level of 1.3500. Thus, we are now observing a logical development of events after a two-month break. At the moment, the pound/dollar has again fallen to a strong support area, near the psychologically important level of 1.3000. The pair has already bounced off this area at least five times, but it cannot do this forever. Sooner or later, the overcoming will take place, and we believe that it will happen in the near future. If this happens, the formation of a downward trend will resume with renewed vigor. We recall that most of the fundamental and macroeconomic factors now speak precisely in favor of moving down. Since the pair has consolidated below the moving average line, the trend has changed downward, respectively, and technical factors are now speaking in favor of continuing the downward movement.
Today, the UK is set to publish a secondary index of business activity in the construction sector in January. Recall that earlier the indexes of business activity in the services and production spheres have been revived, however, the construction sector seems to remain in the recession zone, although forecasts predict growth from 44.4 to 46.6. Of greater importance now, as we see, are the negotiations between London and Brussels regarding a trade deal. Or is it already relative to at least some kind of transaction. As you can see, the European Union and Britain have radically different views on future agreements, which may lead to the absence of these agreements at the end of the negotiations, or more simply to the "hard" Brexit. On the one hand, the participants in the negotiation process are aware that they want different deals. On the other hand, a huge number of obstacles already now suggests that there will simply be no agreement. Michel Barnier, the EU's chief negotiator, said on Monday that the EU is ready to work on partnerships with the UK, but they will definitely not be as large as before. In principle, the European Union immediately said that London should not expect that it would continue to use all the preferences, without making contributions to the EU budget, not being a member of bloc and having complete freedom of action. Barnier just said: "The best partnerships are when you are a member of the EU. When you do not enter the EU, the situation becomes different, more complicated. " Great Britain wants to conclude a trade agreement with zero duties and quotas, as between the EU and Canada. However, negotiations with Canada took seven years. Johnson wants to reach the same deal in ten months talks will begin only in March). Moreover, the British prime minister does not want to remain under the jurisdiction of Brussels on any issue. Barnier said that such a deal would be possible if London agreed to provide guarantees that European and British companies would compete on equal terms. Barnier will also demand concessions regarding fishing. "A free trade deal will not mean continued interaction as before. After all, we will now have two markets, not one," concluded Barnier.
After all this information, questions about why the pound is currently falling do not arise. The British currency came under serious market pressure due to the seriously lower chances of concluding at least some kind of agreement with the EU, not to mention a free trade deal. The UK economy will suffer enormous losses after 2020, much more voluminous than it currently bears (about $70 billion a year), without a deal. What will it result in? In a new fall in GDP and other macroeconomic indicators, in a new fall in the British currency. That is why we believe that the pound will be a tidbit for bears until there are serious reasons to expect a trade deal between the EU and the UK.
From a technical point of view, the downward movement may continue, as the Heiken Ashi indicator continues to be directed downward. However, the pair now needs to confidently overcome the support area of about 1.3000.
The average volatility of the pound/dollar over the past five days has grown to 121 points. According to the current level of volatility, the working channel on February 4 will be limited by the levels of 1.2872 and 1.3114. Continuation of the downward movement will be very logical, however, a reversal of the Heiken Ashi indicator upward will indicate a round of corrective movement against a downward trend.
Nearest support levels:
S1 - 1,3000
S2 - 1.2970
S3 - 1.2939
The nearest resistance levels:
R1 - 1.3031
R2 - 1.3062
R3 - 1.3092
Trading recommendations:
GBP/USD has started a new downward movement. Thus, traders are now advised to sell the pound while aiming for 1.2939 and 1.2909 before the Heiken Ashi indicator turns up. It is recommended to return to purchases of the British currency after the pair is re-secured above the moving average line with the first goals of 1.3114 and 1.3153.
In addition to the technical picture, fundamental data and the time of their release should also be taken into account.
Explanation of illustrations:
The highest linear regression channel is the blue unidirectional lines.
The smallest linear channel 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 movements:
Red and green arrows.
The material has been provided by InstaForex Company - www.instaforex.com