4-hour timeframe
Technical details:
Higher linear regression channel: direction - sideways.
Lower linear regression channel: direction - sideways.
Moving average (20; smoothed) - sideways.
CCI: -18.2576
The British pound fell below the moving average line during the third trading day of the week, showing a low correlation with the euro/dollar pair. Thus, the most important point that we can not pass by is the rebound from the Murray level of "5/8" - 1.3000. We have repeatedly stated that this level is psychologically important, moreover, the price has already rebounded from it on September 16, which means that it is also strong. Thus, the pound sterling has fixed below the moving average and can now continue its decline. Unfortunately, the fundamental background from the US and the UK remains equally negative. In the article on the euro/dollar, we looked at the background from overseas. However, the background from America for the EUR/USD pair is negative, and the EU is neutral. Then for the GBP/USD pair, the background of America is negative, and from the UK are also negative. Therefore, the analysis of this pair is much more complex.
Meanwhile, in the UK, the situation continues to deteriorate. We are referring to the epidemiological situation. For four days in a row, at least 13 thousand cases of the disease are recorded in the country. And this is despite the fact that Boris Johnson said a couple of weeks ago that the second "wave" had begun in the country, introduced new restrictive measures for the population, as well as new, increased fines for non-compliance. As you can see, these measures did not bring any special results, and the British government may face a new round of criticism. We have already said that the political ratings of Boris Johnson continue to decline, however, the ratings of Keir Starmer (the leader of the Labor Party) continue to grow. We have already repeatedly listed the entire list of Johnson's defeats and another record may be added to it in the near future. Namely, the failure of the fight against the second "wave" of the pandemic. The UK health system "breathed its last" when 5-6 thousand diseases were registered daily in the country, now for the fourth day in a row – at least 13 thousand. At the same time, Boris Johnson is not going to introduce a new "hard" quarantine, as he believes that it will have a very negative impact on the economy of the Kingdom. I wonder why the Prime Minister doesn't care how the economy will be affected by the lack of a trade deal with the EU? Or a breach of the Brexit agreement with the EU? However, doctors and scientists are almost sure that a new "lockdown" can not be avoided. The problem is that with the cold snap, the number of people who get sick will only increase, even if they get sick with "normal" flu, SARS, colds, and seasonal viruses. It's still a burden on the healthcare system. Government adviser Professor John Edmunds believes that total quarantine should be introduced now, otherwise it may be too late later.
Well, Boris Johnson, instead of effectively leading the country and countering the pandemic, decided to take up a favorite pastime of Donald Trump called "stories about how everything will be fine... then..." Johnson said on Tuesday that after the COVID-2019 pandemic, he and his government will transform the country, build new homes, improve education and boost the "green economy". Where will all the funds come from if the UK economy loses tens of billions of dollars from year to year due to the still incomplete Brexit, the economy lost 20% of GDP in the second quarter alone, the economy will lose about 170 billion dollars annually starting in 2021 due to the break in relations with the EU (even if a trade agreement is still signed), and it is not known how much it will lose due to the second and all subsequent waves of "coronavirus". However, Johnson does exactly what the rulers do not like and why they are changed – he says a lot and does little. Already, some British publications are leaking information that Boris Johnson may be replaced by the Conservative Party. The name of Rishi Sunak, who currently holds the post of Finance Minister, is called. For example, Bloomberg reports that Boris Johnson's influence has fallen significantly over the past 10 months, and many party members are dissatisfied with the manner of his rule. Many note Sunak's professional qualities, also stating that he is talented (in 40 years – the Minister of Finance), pleasant, smart, and polite.
However, despite the fact that all the problems of the UK look almost unambiguous, there are also experts whose opinions differ from the general one. For example, experts at Goldman Sachs believe that the pound should be bought and that the British currency will strengthen to 1.3300 before the end of the year. According to the bank's analysts, a trade deal with the EU will be agreed in early November, which will support the pound in the foreign exchange market. It is unclear what is the basis of the bank's analyst for such a conclusion. Moreover, just a few days ago, the pound rose to the level of 1.30, from which only three hundred points to the target level of Goldman Sachs. Absolutely not a long-range goal. They might as well have predicted a 50-point increase. But Reuters reported that the agreement may be signed in mid-November, and the parties are getting closer to a consensus. The agency refers to a source in the EU, who says that "the parties are getting closer and closer to an agreement, despite the fact that the public opinion continues to prevail about the failure of the deal". It is difficult for us to make a conclusion about the veracity of this data. One thing is certain. The pound is very fond of getting more expensive on rumors but falls again almost every time because most of these rumors were not confirmed by anything. From our point of view, the probability of concluding an agreement within the established period (until mid-November) is no more than 10%.
The whole fundamental analysis is complicated now by the fact that investors are afraid to invest in the dollar. Otherwise, the pound would already be around $ 1.22. Macroeconomic statistics are currently ignored, so more attention should still be paid to technical factors. Even taking into account all the problems of America, the strengthening of the US dollar now looks much more preferable.
The average volatility of the GBP/USD pair is currently 109 points per day. For the pound/dollar pair, this value is "high". On Thursday, October 8, therefore, we expect movement inside the channel, limited by the levels of 1.2806 and 1.3024. A new reversal of the Heiken Ashi indicator down may signal about a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.2878
S2 – 1.2817
S3 – 1.2756
Nearest resistance levels:
R1 – 1.2939
R2 – 1.3000
R3 – 1.3062
Trading recommendations:
The GBP/USD pair settled below the moving average line on the 4-hour timeframe. Thus, today it is recommended to open short positions with targets of 1.2817 and 1.2756 as soon as the Heiken Ashi indicator turns down. It is recommended to trade the pair for an increase with targets of 1.3000 and 1.3062 if the price returns to the area above the moving average line.
The material has been provided by InstaForex Company - www.instaforex.com