The GBP/USD pair managed to continue to decline after a short pullback. As a result, the quote rushed towards the area of interaction of trade forces 1.2840/1.2860/1.2885, which may give an additional sell signal in the future, if it breaks down.
The recovery process is underway, but in order for sellers to receive the best support, the quotation must consolidate below the level of 1.2840. In this case, the area of interaction of trade forces will lose its influence, and sellers will have a chance to update the local low (1.2674) on September 23.
It is worth recalling that the downward tact begins in the period of September, where the first signal of a reversal of the medium-term trend appeared. At that time, the variable support level was 1.2674, with a correction of 1.2674 --- > 1.3175.
Theoretically, the downward move has the greatest potential if we refer to the information background, which can lead to an even greater weakening of the pound sterling due to the worsening pandemic.
In terms of Friday's daily dynamics, there was a slowdown, where the volatility indicator was only 88 points, which is 27% below the average.
If we analyze the dynamics of volatility in October, you can see that the average daily indicator is 117 points, which is 3% below the average. There is also a slowdown in volatility by 12.6%, contrary to September's dynamics (134 points).
August - 113 points; July - 99 points; June - 127 points; May - 109 points; April - 118 points; March - 269 points
A volatility index above 100 points indicates that speculative interest in the market remains, which is confirmed by a high speculative position ratio.
It was previously discussed that traders adhere to the downward development while the quote is below the level of 1.2990. The main turn of short positions will occur after the price consolidates below 1.2840.
Looking at the trading chart in general terms (daily period), we can see that in just a week and a half, sellers managed to recover by about 59% relative to the move 1.2674 ---> 1.3175.
Last Friday's news background did not have any significant statistics on Britain and the United States, and the information background appeared already during the weekend.
Perhaps for this reason, Friday's dynamics was so low - 88 points.
On Saturday, Prime Minister Boris Johnson announced at a press conference that he will re-introduced quarantine in the country, which will take effect on November 5 and will last until December 2.
Quarantine measures include the closure of all non-food stores and those that sell non-vital goods. All bars, pubs, restaurants will be open only for takeaway and delivery, or will simply be closed. At the same time, citizens of the country must work remotely; members of various families, with some exceptions, cannot meet either indoors or outdoors.
Considering the above material, we have a similar scenario from spring, except that educational institutions will still operate. There is a huge economic pressure on the economy which will affect the exchange rate of the national currency.
For the economic calendar, we only have the US ISM manufacturing business activity index for October today, but this is not expected to affect the market due to strong information background, as well as the US presidential elections tomorrow.
Further development
Analyzing the current trading chart, a variable gap can be seen within the upper limit of the area of interaction of trade forces 1.2840//1.2860//1.2885, where the quote tries to repeat the natural basis of the rebound, but the pressure from sellers is too high.
In this situation, there may be a slowdown within the interaction area, where, as before, the main tactic is considered to be a breakdown followed by a downward development. A price consolidation below 1.2840 on the H4 TF will indicate a subsequent recovery of downward interest, which can result in an increase in the volume of short positions.
Indicator analysis
Analyzing different sectors of time frames (TF), we see that the technical indicators on the hourly and daily TFs have a sell signal due to the recovery process. In turn, minute TFs also have a sell signal due to the downturn during the Asian session.
Weekly volatility / Volatility measurement: Month; Quarter; Year
Measurement of volatility reflects the average daily fluctuation, calculated per Month / Quarter / Year.
The dynamics of the current time is 45 bps, which is 62% lower than the average. A breakdown in the level of interaction between trading forces can cause volumes to rise, which leads to a market acceleration.
Key levels
Resistance zones: 1.3000 ***; 1.3200; 1.3300 **; 1.3600; 1.3850; 1.4000 ***; 1.4350 **.
Support zones: 1.2840/1.2860/1.2885; 1.2770 **; 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