4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 139.4915
The British pound resumed its upward movement on Tuesday, January 26. Thus, the next consolidation of the price below the moving average line did not lead to a new downward trend or even to a noticeable downward correction. We have repeatedly stated that if the euro/dollar is trading at least relatively calmly and more or less logically, the pound sterling continues to trade in the "random" and "swing" modes while remaining near its 2.5-year highs. In principle, the pound sterling began to rise in price exactly at the same time as the euro currency. Accordingly, all the factors described by us as possible reasons for the fall of the US dollar in the last 10 months can be applied to the pound/dollar pair. The mistake was that too much attention was paid to Brexit and the trade negotiations between the UK and the European Union in recent months. Of course, it would be logical that with the minimum probability of an agreement and the maximum probability of a fall in the British economy, the pound would fall, not rise in price. However, at the same time, the US economy was pumping real money, and its GDP in the second quarter fell so much that it will recover for a long time. Thus, everything seems to be logical. However, there are still a lot of questions about the pound. Let us consider them below.
First, if the situation is the same or almost the same as with the euro currency, then why is trading in the pound so nervous? After all, the "swing" is the nervousness of the market. The upward trend persists, however, the movements are very "random". The pair are constantly thrown from side to side.
Secondly, in the review of the euro currency, we pointed out that the US economy contracted in the second quarter much more strongly than the European one. What about the British economy? It lost 19.8% in the second quarter and grew 15.5% in the third, and should lose 2% in the fourth. For the States, the calculations showed a result of 95,172. That is, after the fourth quarter of 2020, the British economy lost more than the American economy as a percentage of the first quarter of 2020. Well, we do not take into account the fourth quarter, the figures then turn out as follows: the UK - 92,631, the US - 91,512. That is, the losses are approximately equal for the second and third quarters of 2020. However, all this time, the pound sterling was growing. Even though Brexit will have a long-term negative impact on the economy. Even though in the UK, there was a third "lockdown". Thus, only one thing can be assumed. If traders pay attention exclusively to the volume of incentives "out of thin air" and the state of the economy relative to the first quarter of 2020, then everything is understandable. The British economy has lost less at the moment (we do not take into account the fourth quarter), and there was little "helicopter money" in the Foggy Albion. That's why the pound has been growing all this time.
What will happen next? If the GDP forecasts for the fourth quarter come true, this will already be a good reason for at least a corrective fall in the pound/dollar pair. However, UK GDP data will not be released until mid-February. If by this time the US Congress has time to approve a 2-trillion-dollar stimulus package, then the US currency can continue to fall calmly since it will not matter what macroeconomic indicators are in the United States and what are in the United Kingdom. +2 trillion dollars that were taken out of nowhere.
Against the background of such reflections and hypotheses, the speeches of Andrew Bailey and other top officials of the United States and the Kingdom already look meaningless. If we assume that our hypothesis is correct, then the macroeconomic background does not matter at all and will not matter for a long time until Congress stops throwing "helicopter money". Of course, sooner or later this process must stop. Although formally, it can last as long as you want. For example, the Bank of England will accuse the Fed and Congress that they are not only "saving the economy", but also manipulating the exchange rate, and then what? Will the UK impose sanctions on the United States? This is about the same thing that Nicaragua will impose sanctions against China. Of course, London has certain levers, but with Brexit, its weight in the international arena has become much less. Rather, it is the US that has more influence over the UK. Thus, it turns out that the question is as follows: how long will Washington approve more and more stimulus packages? After all, formally, the national debt of the States is also growing. It didn't seem like anyone cared, but the national debt is growing. Still, not all the money is printed if necessary, some are still attracted and such debts need to be paid and serviced. For example, we are talking about government securities that are placed on open markets and on which dividends should be paid.
Based on all of the above, the conclusion follows: the pound may continue to rise in price in the near future, but the chances of growth will be greater if the US Congress approves a new package of stimulus measures for the US economy. "Foundation" and "macroeconomics" play almost no role now, and "technology" is too one-sided at this time. All the signals about a trend change to a downward trend have been false in recent months. This factor should be taken into account when trading in the medium term.
The average volatility of the GBP/USD pair is currently 101 points per day. For the pound/dollar pair, this value is "high". On Wednesday, January 27, thus, we expect movement within the channel, limited by the levels of 1.3628 and 1.3830. A reversal of the Heiken Ashi indicator downwards will signal a new round of downward movement.
Nearest support levels:
S1 – 1.3702
S2 – 1.3672
S3 – 1.3641
Nearest resistance levels:
R1 – 1.3733
R2 – 1.3763
R3 – 1.3794
Trading recommendations:
The GBP/USD pair on the 4-hour timeframe has started a new round of upward movement, possibly again within the "swing". Thus, today it is recommended to trade for an increase with targets of 1.3763, 1.3794, and 1.3824 before the Heiken Ashi indicator turns down. It is recommended to consider sell orders with a target of 1.3641 if the price bounces from the level of 1.3733.
The material has been provided by InstaForex Company - www.instaforex.com