4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: 28.5403
The GBP/USD currency pair also continues a weak correction movement after it failed to overcome the Murray level of "-1/8"-1.1475. Thus, in the near future, a moving average line may be worked out, near which the future fate of the pound will be decided. Demand for the US currency has declined in recent days, but this does not mean that the march to the south is over. At any moment, market participants may start to panic again, which will lead to new completely crazy movements in the currency market. Thus, we recommend that traders remain calm and be prepared for any developments. The latest actions of the Federal Reserve and the US Treasury Department have led to a slight drop in demand for the dollar, but this reduction is clearly not enough to activate the full force of the bulls. Volatility remains extremely high, with the pound/dollar pair passing around 300 points daily.
Business activity in the manufacturing and services sectors of the UK that was published the day before both pleased and upset at the same time. On the one hand, the industrial sector has not collapsed so much, on the other - the service sector has declined significantly. Today, Britain will publish no less significant data on inflation for February. According to experts' forecasts, the main indicator of inflation will slow down to 1.5%-1.7% in annual terms. On a monthly basis, an acceleration of 0.2%-0.3% may follow after the negative value of the previous month.
We will also publish the basic consumer price index (excluding changes in prices for consumer goods and energy), which is projected to slow down to 1.3%-1.5% y/y. We believe that these data, which are extremely important in normal times, will not cause any reaction from traders today. They refer to the month of February, this time. Secondly, traders who daily trade a pair of 300 points, clearly do not pay attention to these types of reports, which in normal times cause a movement of 70-80 points. Panic continues to reign in the currency market, and the British currency remains to rely on the saturation of bears, and not on macroeconomic statistics.
Unfortunately, the topic of "coronavirus" remains the number one topic in the world. In the UK, by the way, things are not as bad as they could be. At the moment, the number of people infected with the COVID-2019 virus is just over 8,000 people. However, the trend is still extremely negative. It doesn't matter what the total number of infected people is. It is important to know how fast the infection is spreading. Italy, for example, is already catching up with China in terms of the number of cases of the pandemic, which started everything. How many people live in China and how many in Italy? But still. Thus, it will not be surprising if we soon see five-digit numbers of cases in Britain.
In light of the spreading pandemic, scientists are warning Prime Minister Boris Johnson that too lenient quarantine measures could result in hundreds of thousands of cases and tens of thousands of deaths. Scientists from University College London, Cambridge University and the British Center for Health Research concluded that the quarantine measures are not strict enough in the country. Scientists propose to introduce forced isolation of the population, as well as to test for "coronavirus" all residents of the country, and not only people who are in the "risk zone". As previously reported, some British citizens did not take the pandemic seriously and did not self-isolate themselves at home. Therefore, this forces Boris Johnson to address the residents of the UK on a daily basis and ask them to comply with quarantine measures. However, experts believe that a strict quarantine will still be introduced, since the daily increase in the number of cases is 10%. According to other analysts, the rate of increase in the spread of the disease in Britain is already fully in line with the rate in Italy. That is, in two weeks, Britain may well catch up with Italy, the most affected by the "coronavirus".
Even more negative information was waiting for the pound from economists. According to many experts, if the epidemic can be stopped in the near future, the country will lose just over 2% of GDP, if the UK follows the "Italian path", the economy will lose at least 5% of GDP. It is also noted that the "coronavirus" pandemic in its consequences for the Foggy Albion is worse than Brexit. There is a strong drop in industrial production and demand for goods and services within the Kingdom. The UK government has already promised to pay 80% of wages in case of job loss, however, we believe that the situation will still get worse. In times of crisis, the population tends to accumulate, rather than spend and invest. Thus, the British will spend less than usual, which will lead to lower profits in many areas and, as a result, affect the country's GDP. The UK economy is also under pressure from low oil prices. Although the country is not a major oil exporter, it produces a certain amount of "black gold" in the North Sea. Thus, the fall in the price of the world's number one energy carrier will negatively affect the UK oil and gas industry. And of course, the British stock market and its main index FTSE 100, which over the past month declined from 7,457 to 4,993 and only today began to show signs of recovery.
From a technical point of view, the pound is being adjusted now as well as the main FTSE 100 stock index. That is, very weak. As long as the price is located below the moving average line, there are high chances of resuming the downward trend. It is also possible to move in the side channel if the bears do not find new reasons for selling the pair. We continue to draw the attention of traders to the panic state of the market and high volatility. These factors should be taken into account when trading the GBP/USD pair.
The average volatility of the pound/dollar pair over the past 5 days is already 420 points and continues to grow. On Wednesday, March 25, we expect the pair to move within the volatility channel of 1.1316-1.2156. This pair is likely to return to the lower border, but the level of 1.1475 still keeps the pound from falling again. The reversal of the Heiken Ashi indicator down may signal a new approach of the pair to move down.
Nearest support levels:
S1 - 1.1475
S2 - 1.1230
Nearest resistance levels:
R1 - 1.1719
R2 - 1.1963
R3 - 1.2207
Trading recommendations:
The GBP/USD pair continues to adjust at the moment. Thus, sales of the pound remain relevant with the targets of 1.1475 and 1.1316, but it is recommended to open new sell positions not earlier than the downward reversal of the Heiken Ashi. It is recommended to buy the British currency with the target of 1.2156, but not before fixing the price above the moving average. We remind you that in the current conditions, opening any positions is associated with increased risks.
Explanation of the illustrations:
The highest linear regression channel is the blue unidirectional lines.
The lowest linear regression channel is the purple unidirectional lines.
CCI - blue line in the indicator window.
Moving average (20; smoothed) - 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 variants of the price movement:
Red and green arrows.
The material has been provided by InstaForex Company - www.instaforex.com