The GBP/USD pair has had the largest decline in six months since the beginning of September. The volume of the decline in the pound rate exceeds 800 points, which is probably just the beginning. A price consolidation below the reference level 1.2770 set the sellers free, which could be the beginning of a new downward trend with a perspective of several months.
It should be noted that although the market has acquired a downward pattern, it still remains unstable, with a high degree of emotional distress. Thus, it is worth considering such a factor as local surges, with one or another change in the information background.
Analyzing yesterday's fifteen-minute TF, it is impossible to single out something extraordinary. The quote consolidates the price at new levels, in particular, below the reference level 1.2770. The consolidation amplitude has variable borders of 1.2674/1.2775, where market participants accumulate and regroup trading forces.
In terms of daily dynamics, a slowdown of 18% relative to the average level is recorded, but a numerical indicator of 101 points indicates that the market is highly active. It is worth considering that there was a slowdown stage yesterday, which was expressed in the price consolidating at new levels. This process is a priori considered low activity, but we have a dynamics of 101 points, which is considered a lot. This suggests that speculators prevail in the market.
As discussed in the previous analytical review, market participants are focused on further decline of the value of the British currency, but do not exclude that the process may have a step-by-step form.
Looking at the trading chart in general terms (daily period), you can see an impressive price change, but the pound rate still has room for further decline.
Yesterday's news background had preliminary data on the index of business activity in Britain. So the business activity index in the manufacturing sector fell from 55.2 to 54.3, instead of the predicted 53.8. The service PMI confirmed expectations and fell from 58.8 to 55.1, while the composite business activity index fell from 59.1 to 55.7.
In the afternoon, similar PMI data came out in the US, which turned out to be much better than forecasts. So, the index of business activity in the service sector declined less than expected, from 55.0 to 54.6, against the forecasted decline of 54.1. The index of business activity in the manufacturing sector, in turn, rose to 53.5 instead of falling from 53.1 to 53.0.
The market viewed news flow as a secondary element.
The background information is focused on the second wave of coronavirus and restrictive measures. Any new information on this topic automatically provokes speculators to take action, thereby closely monitoring the information flow. The second important topic is Brexit, where there is no time to resolve issues, and there are plenty of disagreements. Thus, tight deadlines can push speculators to take action, that is, without agreements on the deal, the pound will receive an additional incentive to reduce its value.
Today, the weekly data on claims for unemployment benefits in the United States are published, where they predict another reduction in their volume.
Initial applications can be reduced from 860,000 to 840,000, while reorders can be reduced from 12,628,000 to 12,100,000.
The recovery of the labor market directly affects the stability of dollar positions.
Further development
Analyzing the current trading chart, you can see the stage of price consolidation at new price levels, where the quote moves in the previous day's range 1.2674/1.2775. Holding the price below the control level will lead to further downward development sooner or later towards the price levels 1.2620 - 1.2500 - 1.2350.
An alternative scenario will be considered if the price returns above 1.2770, but even in this case, we are likely to see a local correction without changing the market course.
Indicator analysis
Analyzing different sectors of time frames (TF), we see that indicators of technical instruments on hourly and daily periods signal a sell by focusing the price below 1.2770.
Weekly volatility / Volatility measurement: Month; Quarter; Year
The volatility measurement reflects the average daily fluctuations, calculated per Month / Quarter / Year.
(It was built considering the time of publication of the article)
The volatility of the current time is 47 points, which is 61% below the average. We can assume that the activity is likely to grow due to the massive speculative mood in the market.
Key levels
Resistance zones: 1.2770 **; 1.2885 *; 1.3000 ***; 1.3200; 1.3300 **; 1.3600; 1.3850; 1.4000 ***; 1.4350 **.
Support zones: 1.2620; 1.2500; 1.2350 **; 1.2250; 1.2150 **; 1.2000 *** (1.1957); 1.1850; 1.1660; 1.1450 (1.1411).
* Periodic level
** Range level
*** Psychological level