4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - downward.
CCI: -106.0242
The British pound continues to trade inside the side channel of 1.3620-1.3745 and at the same time according to its own rules. Predicting the behavior of the pound/dollar pair is now both very difficult and very easy. It is difficult – because we look at the 4-hour timeframe and see a "swing", that is, the pair continues to be thrown from side to side, so it is very difficult for traders to even just keep up with the formation of signals and their development. It is easy – because now you need to take into account only technical factors. All fundamental and macroeconomic factors continue to be ignored by market participants. This is perfectly noticeable when comparing the movement of the euro/dollar and pound/dollar pairs. If the euro currency is quite logically and reasonably adjusted, then the pound continues to trade around 2.5-year highs, without moving away from them by more than 150 points. Why? Is it that bad in America? Then the euro would trade near its 2.5-year highs. Is everything so great in the UK? A rhetorical question. Therefore, most likely, the matter now lies in the illogical movement of the pound/dollar pair.
However, we still need to make trading decisions or at least do analysis and forecasting. Today, the results of the Bank of England meeting will be summed up in the UK, and it is impossible to pass by this event, even if you realize that the fundamental background is now being ignored. The first and most important thing to understand is that the Bank of England is unlikely to change the parameters of monetary policy at the first meeting of the year and the first meeting after Brexit. Even though there are a lot of rumors around the British regulator now, the probability of changing the parameters of the PREP is minimal, no more than 1%. That is, the key rate will remain at 0.1%, and the volume of bond purchases - at the level of 895 billion pounds. However, many experts believe that the Bank of England will continue to "prepare the ground" for the introduction of negative rates in the future. Recall that talk about negative rates has been going on for about six months. All this time, representatives of the Bank of England and Andrew Bailey say that they are studying this issue and the practice of applying such rates by other central banks. The head of the BA has already said that negative rates are "very problematic" and create difficulties for commercial banks. However, no one refused to study this issue, which means that the rate may be lowered in the end. It's just a matter of time. Few people now believe that the British economy does not need help. Three "lockdowns", external isolation due to the "British" strain of "coronavirus", Brexit – this is just a small list of reasons why the British economy is currently in decline. In the fourth quarter of 2020, it will face a new reduction. And, most likely, the same thing – and in the first quarter of 2021. Thus, the Bank of England simply needs to either follow the example of the Fed by pouring hundreds of billions of pounds into its economy or stimulate it by lowering the rate. The British are more meticulous and accurate people than the Americans, so they do not want to increase the national debt. So, we need to lower the bid. Some experts believe that the rate will be reduced in 2021, but not earlier than August. The decrease may be 0.2%, that is, to the level of -0.1%.
At the moment, there is no consensus among the members of the monetary committee on the possible reduction of the key rate. For example, BA member Silvana Tenreyro supported negative rates, while the bank's chief economist, Andy Haldane, opposes them. Thus, the most important thing today will be the vote of the members of the monetary committee. At the same time, the old alignment, in which all nine members vote against changing the rate, will not mean that all nine members refuse to lower the rate in the future. Most likely, it will be about "here and now". At the same time, if at least 1 or 2 members of the committee vote "for" a reduction, it will be a serious signal in favor of the fact that negative rates may appear in the coming months. For the British pound, such a scenario would be frankly "bearish". It is unclear whether market participants are going to react at all to the events of February 4, however, it seems to us that it will be impossible to ignore such important decisions.
The rhetoric of the Bank of England's Chairman, Andrew Bailey, will also be of great importance. It is Bailey who can state in plain text or at least hint at whether the regulator is going to make its policy ultra-soft, following the example of the ECB? Any hint of a "yes" answer would also be a "bearish" factor for the British pound. Most experts now agree that Bailey's rhetoric will be as cautious as possible. Most likely, Bailey will report that "the lower limit of the key rate is below zero," which will mean a possible rate cut if necessary, which may not yet occur. That is, the rhetoric can be as vague as possible, and in this case, everything will depend on how most traders interpret it. From our point of view, the British currency remains overbought. Therefore, even from a technical point of view, it is long past time for it to go down. Perhaps today's BA meeting will be the impetus that will force traders to massively get rid of the British pound. After all, on the 4-hour timeframe, everything looks like a "swing", but, for example, on the 24-hour timeframe, we see a recoilless upward movement for 93 working days, that is, four months. Also in recent weeks, the volatility of the GBP/USD pair has decreased, and the movement on the lowest timeframes has become sideways. From our point of view, this is the calm before the storm. But before what storm? Before a new dash up or before a long-awaited dash down?
The average volatility of the GBP/USD pair is currently 96 points per day. For the pound/dollar pair, this value is "average". On Thursday, February 4, thus, we expect movement within the channel, limited by the levels of 1.3545 and 1.3737. A reversal of the Heiken Ashi indicator to the top will signal a new round of upward movement within the "swing".
Nearest support levels:
S1 – 1.3641
S2 – 1.3611
S3 – 1.3580
Nearest resistance levels:
R1 – 1.3672
R2 – 1.3702
R3 – 1.3733
Trading recommendations:
The GBP/USD pair on the 4-hour timeframe began a new round of downward movement within the framework of the continuing "swing". Thus, today it is recommended to trade for an increase with a target of 1.3750 if the price again fixes above the moving average. It is not recommended to consider sell orders now.
The material has been provided by InstaForex Company - www.instaforex.com