4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: -106.1092
The British pound finally calmed down after three stormy days and traded in a very narrow price range yesterday. At the same time, the pound/dollar pair continues to trade dangerously close to the moving average line and can overcome it at any time. Thus, as in the case of the euro currency, there are very few prospects for the pair to go down. Let's start with the fact that the bears did not manage to at least get to the previous local lows, located near the Murray level of "5/8" - 1.3000. Not to mention trying to overcome them. Thus, the level of 1.3000 keeps the quotes from falling further, and the level of 1.3245 keeps the pair from rising again, from which the pair bounced twice. Thus, the situation is similar to the situation for the euro/dollar pair. And everything still revolves around the US dollar and the US. Today, we even tend to think that the fall in the pound on Friday was not related to information about the failure of negotiations between London and Brussels. If you look at the previous movements of the pair, it is even more difficult for them to find the reason and justification. Moreover, this was not the first failure in the negotiations, the previous six rounds also ended in nothing. At the same time, Michelle Barnier and David Frost begin to contract the disease of Donald Trump called "promise everything you can; say everything you want". The chief negotiator from the UK has repeatedly stated that it is quite possible to reach an agreement with the European Union, and it is even possible to do so before the end of September (initially, the deadline was until the end of summer), despite the fact that it usually takes at least several years to discuss all aspects of the agreement. But Boris Johnson and David Frost are not interested or concerned about this fact. Moreover, neither Frost nor Johnson say what is needed to conclude at least a trade agreement with the European Union? Michel Barnier, in turn, also from time to time stated that it is possible to negotiate, but it will be difficult to do so because of the very tight deadline. And the question is, on what basis did Barnier and Frost make statements about the possibility of a deal? From the fact that formally the chances remain until the very last day of negotiations? There has been no progress on the key four issues almost from the very beginning of the negotiations. In the end, it was only at the end of August that Barnier finally stated what was clear to many back in March. It will be almost impossible to conclude a trade deal, and in the current environment, it is best to focus on a narrowly focused agreement that deals only with trade. Actually, this is what London wanted from the very beginning. Recall that Boris Johnson was not going to initially conclude any agreement with the EU. There were even rumors that in order to subsequently conclude a trade agreement with the States, Johnson was given a condition – no agreements with the EU. However, a little later, under pressure from the public and opposition political forces, Johnson still entered into negotiations, but immediately said that Britain is primarily interested in a trade deal, not a comprehensive agreement. London was not going to remain under the jurisdiction of Brussels, was not going to comply with any EU rules and intended to get full independence. Thus, it was immediately clear that there would be no agreement that Brussels wants. Now there is only one question: will the EU board agree to conclude only a trade agreement with London and will negotiations on it also stall?
And the question remains for market participants, when will they finally remember that in the UK, thanks to the absence of a trade agreement with the EU and the US, as well as Brexit and the "coronavirus crisis", the economic situation is not much better than in America? The US dollar has already fallen quite a bit against the pound. Such a fall looks more or less justified when paired with the euro currency, but not with the pound. Meanwhile, Britain's national debt is growing. For the first time in the history of the UK, the national debt exceeded the value of 2 trillion pounds. These are the results of maintaining the economy after the "coronavirus crisis". Also in the UK, unemployment is expected to rise to 9% in the near future. In Britain, the government almost completely covered the salaries of employees during and after the quarantine. Therefore, the official unemployment rate has not increased at all. But the government of the Kingdom cannot constantly pay out of its own pocket such fabulous amounts, and the country's economy will recover with all the shocks not earlier than in a few years. Thus, as soon as state funding decreases or stops completely, unemployment will creep up. In general, the situation in the Foggy Albion remains difficult, so it is not clear on what grounds the pound can continue to grow.
The macroeconomic background was not available on Monday, and it will be available on Tuesday. Thus, traders have no choice but to continue to track the common fundamental themes. Technical factors are also important now, but the trend is largely absent at this time. It is very difficult to imagine what can make traders buy the pound around 5-month highs, and market participants do not want to sell the pair. As a result, the quotes have been trading almost in a side channel for more than a month, near the moving average line, overcoming it with a frequency of once every few days. Thus, it is very difficult and inconvenient to trade these movements. At the same time, the upward trend remains, as indicated by both channels of linear regression, directed upwards. In general, the situation is quite ambiguous and confusing.
The average volatility of the GBP/USD pair is currently 151 points per day. For the pound/dollar pair, this value is "high". On Tuesday, August 25, thus, we expect movement within the channel, limited by the levels of 1.2915 and 1.3217. Turning the Heiken Ashi indicator upward will indicate a possible new round of upward correction.
Nearest support levels:
S1 – 1.3062
S2 – 1.3000
S3 – 1.2939
Nearest resistance levels:
R1 – 1.3123
R2 – 1.3184
R3 – 1.3245
Trading recommendations:
The GBP/USD pair is trying to start a new downward trend on a 4-hour timeframe. Thus, today it is recommended to consider short positions with the goals of 1.3000 and 1.2939 and hold them until the MACD indicator turns upward. It is recommended to open buy orders again before fixing the price above the moving average with the goals of 1.3217-1.3245.
The material has been provided by InstaForex Company - www.instaforex.com