4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -16.9534
On Wednesday, the British pound stopped the process of depreciation against the US currency. In principle, we have been talking about this in recent days. It should be understood that the epidemiological factor is an important factor. However, the markets cannot trade only in accordance with it. Throughout the coronavirus pandemic, traders were not too often guided when making trading decisions solely by the morbidity and mortality indicators from COVID. They were much more interested in fundamental global factors, not even macroeconomics. Thus, the three-day rally of the pound down could not continue. Of course, this is a market. No one can say with one hundred percent probability that the pound will no longer become cheaper.
Nevertheless, the global technical factor suggests that the maximum program has already been exceeded. However, the pound/dollar pair is ideally in the range we called in recent weeks – 1.3600-1.3666. Therefore, we expect that the pair will start a new round of upward movement from this range, with a long-term one. From our point of view, the US dollar has already risen sufficiently, and its further strengthening is unlikely. Of course, on the 4-hour timeframe, the pair continues to be located below the moving average line. It means that at this time, there are no grounds for opening long positions. Recall that specific technical signals must confirm any hypothesis. If they are not present, then the hypothesis should not be worked out yet. In the UK, a new round of growth in the number of cases of the disease may well begin, which may force the markets to resort to selling off the British currency again.
Meanwhile, the epidemiological situation in the UK is beginning to stabilize. On July 19, 46,500 new disease cases were recorded, which is less than the peak value of the "fourth wave." Also, 102 Britons died from the effects of the "coronavirus," and this is the highest value since mid-March. Thus, the concept of "stabilization" is now very conditional. The country is at its peak in terms of mortality and morbidity in the fourth "wave." And, unfortunately, these indicators have not yet begun to decline enough to talk about the end of the "wave." Although almost 70% of the UK's adult population has already received both doses of the vaccine, the incidence has increased by 40% over the past week. At the same time, it is reported that at least 259 people died from the delta strain, while 116 of them were fully vaccinated. Thus, any vaccines seriously reduce the risk of getting "coronavirus" but do not completely exclude it. Doctors said that everyone still needs to be vaccinated, and vaccines work against the virus. But there are always particularly severe cases, or the patient is immune to the vaccine. In general, no vaccine protects 100%. A huge number of scientific studies have confirmed it.
However, the "coronavirus" is not the only problem in the UK at this time. Recall that relations between the EU and the UK continue to deteriorate after David Frost openly stated that he demanded a revision of the" Northern Ireland Protocol," and representatives of the European Commission replied that this would not happen. Thus, it turns out to be a rather stalemate situation. The United Kingdom, which is still afraid of new unrest on the island of Ireland, is trying to soften the "Northern Ireland protocol" effect as much as possible so that the Irish have no reason to worry. Nevertheless, certain documents within the framework of the Brexit agreement have already been signed, and the European Union requires London to implement them strictly. Thus, if the "Northern Ireland protocol" is not revised, then new problems with Northern Ireland are possible. And Brussels does not want to revise the terms of the agreement. In general, this whole situation can end with another violation of the agreement by the government of Boris Johnson, and the European Union, which is just waiting for this, can immediately go to court or impose sanctions and fines against Britain. It should be understood that, in general, sanctions and fines, as well as court proceedings, are not beneficial to anyone. The United States and China can confirm this. However, they are necessary tools for conducting international affairs. If London allows itself to change the points of the agreement unilaterally, it must incur a specific penalty for this. If there is no punishment, then London will constantly violate any agreements. In addition, the European Union needs to show all its remaining member countries that those who leave the alliance or are going to do so will find themselves in a less advantageous position than they are now in the bloc. Britain's exit from the EU has greatly affected the reputation of the bloc.
Moreover, the European Commission and the European Parliament need to show that Britain will not receive any preferences outside the European Union and will not have access to the 400 million European markets simply because Boris Johnson wants it. Moreover, if the agreements are violated, the European Union will be forced to cool relations with the Kingdom, which are already far from the concept of "warm." In general, the UK, as usual, has been in the very center of events in recent years. On the one hand, these events have a clear negative color for the Kingdom. On the other hand, inflating the money supply in the United States can easily cover all these negative aspects.
Thus, the British currency continues to remain in a downward trend for the time being. We expect its early completion. However, there is no technical signal about it yet. Therefore, you need to wait at least for the pair's quotes to consolidate above the moving average line, and only then consider options for long positions.
The average volatility of the GBP/USD pair is currently 113 points per day. For the pound/dollar pair, this value is "high." On Thursday, July 22, we expect movement inside the channel, limited by the levels of 1.3605 and 1.3829. A reversal of the Heiken Ashi indicator back down signals a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.3672
S2 – 1.3611
S3 – 1.3550
Nearest resistance levels:
R1 – 1.3733
R2 – 1.3794
R3 – 1.3855
Trading recommendations:
The GBP/USD pair adjusted to the moving on the 4-hour timeframe. Thus, new sales of the pair with targets of 1.3672 and 1.3611 are possible today if a price rebounds from the moving average line. Buy orders should be considered if the price is fixed above the moving average with targets of 1.3794 and 1.3829, and keep them open until the Heiken Ashi turns down.
The material has been provided by InstaForex Company - www.instaforex.com