4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - sideways.
Moving average (20; smoothed) - upward.
CCI: 42.4754
The British pound was trading as calmly as possible on Tuesday, October 6. It was only in the second half of the day that there was a rush down to the moving average line, which, however, did not completely disrupt the technical picture that has developed in recent days. The most important thing is that the pound/dollar pair worked out the level of 1.3000 during yesterday's trading, which we highlighted in recent articles and called it psychologically important. It was the price rebound from this level that triggered the downward movement. However, the price failed to gain a foothold below the moving average, which means that the fate of the pair remains in the hands of buyers. At the same time, we also note that the fundamental background remains extremely heavy for the British pound, and only an equally weak background from America continues to keep the British currency afloat.
The worst thing is the situation with the "coronavirus" in the Foggy Albion. In the last three days, almost 50 thousand cases of infection were recorded, that is, an average of 16-17 thousand per day. This indicator is already three times higher than the maximum daily value, which was recorded at the height of the first "wave" this spring. However, there is a certain encouraging explanation for such a sharp increase in infections. The fact is that the excel table, which keeps a list of infected Britons, is designed for 16 thousand columns and just over a million rows. It is reported that at some point in this table, the available rows simply ran out and the program simply "cut" all cases from the period from September 25 to October 2 that did not fit in it. It is reported that this is almost 16,000 cases, which were added to the reports for October 3, 4, and 5. Therefore, from 50 thousand cases during these days, you can safely take away 16 thousand "additional" and get about 34 thousand in three days, which is still very much. The worst thing in this situation is not the failure itself, but the fact that these 16 thousand who were not immediately included in the lists were also not taken into account when determining the circle of people to isolate. Thus, these 16 thousand infected could infect a fairly large number of other Britons within a week.
British Prime Minister Boris Johnson said, meanwhile: "I must say in all honesty that the path of the virus will continue to be bumpy until Christmas, and may continue after that." Johnson believes that the country will be in a "very difficult situation" until the spring, although the facts and concrete figures indicate that the country is already in this situation.
While the UK is trying to cope with a new outbreak of COVID, the European Union, despite the extension of the Brexit negotiations for one month and the seemingly deferred trial due to the "Johnson bill", continues to prepare for a "hard" option of "divorce" with the Kingdom. The European Commission sees extremely low chances of concluding a trade agreement. This was stated by Vice-President of the European Commission Maros Sefcovic. "We have less than 100 days until Brexit, and the negotiations are still far from over. European Commission chief Ursula von der Leyen had a phone conversation with Prime Minister Boris Johnson over the weekend. They stated that some progress has been made in the negotiations, but much more needs to be done to reach an agreement," Sefcovic said. The Vice-President also touched on the controversial draft law "on the internal market": "The implementation of international agreements is not only a legal obligation but also an issue of the UK's state prestige, which can be seriously damaged."
Meanwhile, analysts at the law firm Baker & McKenzie estimate that the UK will lose about 134 billion pounds each year starting in 2021 over a decade due to a combination of Brexit without an agreement with the European Union and COVID-2019. It is reported that the annual GDP is already 2.2% lower than predicted before the outbreak of the pandemic. Even if a trade agreement is eventually concluded with the European Union, Britain will still miss another 3.1% of GDP in the long run. Without a trade deal, the GDP will lose 3.9%.
In addition, it is reported that many financial and manufacturing companies continue to leave the UK without waiting for Brexit. It is already known about approximately 7,500 employees of various companies who were transferred to offices in the European Union. Companies have also withdrawn more than $ 1.6 trillion from Britain. The main problem is that British companies and offices will not be able to provide their services to companies from the EU from the beginning of 2021. Naturally, we are talking about the loss of a huge market and profit. So "the rats keep running from the ship" because the "ship" is actually sinking.
Well, the British pound sterling in this situation continues to hold its position against the US currency thanks to a miracle alone. However, as we said earlier, if the tension in America may subside in a month (especially if Joe Biden wins the election), then the UK is expected to have another "fun" year with another downturn in the economy, and a very impressive decline. If in 2020 the UK was covered by the "coronavirus epidemic", then in 2021 its second "wave", as well as the "divorce" with the EU and the consequences of the lack of a trade "deal" may have an even greater negative impact. Thus, we are inclined to believe that 2021 will be even more difficult for the Kingdom than the current one. Accordingly, the British pound will continue to experience problems in the foreign exchange market that have plagued it for several years. In the near future, the fall in quotes may resume, as traders failed to overcome the level of 1.3000. This will open the prospect of the pair falling to the level of 1.2700. If the disappointing fundamental background continues to come from the UK, then the pound can only accelerate its fall.
The average volatility of the GBP/USD pair is currently 119 points per day. For the pound/dollar pair, this value is "high". On Wednesday, October 7, thus, we expect movement inside the channel, limited by the levels of 1.2819 and 1.3057. A new reversal of the Heiken Ashi indicator upward signals the resumption of the upward movement.
Nearest support levels:
S1 – 1.2939
S2 – 1.2878
S3 – 1.2817
Nearest resistance levels:
R1 – 1.3000
R2 – 1.3062
R3 – 1.3123
Trading recommendations:
The GBP/USD pair started to adjust to the moving average line on the 4-hour timeframe. Thus, today it is recommended to open new longs with targets of 1.3000 and 1.3062 as soon as the Heiken Ashi indicator turns up or there is a rebound from the moving average. It is recommended to trade the pair down with targets of 1.2817 and 1.2756 if the price returns to the area below the moving average line.
The material has been provided by InstaForex Company - www.instaforex.com