4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 111.3357
The British pound on Thursday, January 21, finally broke through the level of 1.3700, near which it has been hovering since January 4. As we expected, each subsequent rebound from the level of 1.3700 only increased the chances of overcoming this level. Each subsequent bounce was smaller than the previous one. Therefore, it is not surprising that in the end, the pound sterling continued to rise above this level. There is nothing new to say about the reasons for the new growth of the British currency. In the article on the euro/dollar, we mentioned hypothetical reasons why the euro may become more expensive in recent months when there is no apparent reason for this. In the situation with the pound, there are many reasons for the fall of the British currency. However, it is the pound that shows even stronger growth than the euro. It is only necessary to list the main factors that currently take place. "Coronavirus": in the UK, record death rates are recorded. Economy: GDP will decline not only in the fourth quarter of 2020 but also in the first quarter of 2021. Monetary policy: no change, but Bank of England members are still considering introducing negative rates. Brexit: no comments. It is very difficult to find even hypothetical reasons for the growth of the British currency. But it is the pound that continues to rise in price against the US dollar. Although nothing openly negative is happening in the United States right now. Moreover, there have been positive developments with the arrival of Joe Biden. Many absurd decisions of Donald Trump will be canceled, the Democratic president takes the "coronavirus" much more seriously than his predecessor, the $ 1.9 trillion stimulus package will be agreed (since the entire US government is now controlled by Democrats), GDP forecasted with growth in the fourth quarter. Thus, we can only make the same assumptions as for the euro currency.
In this situation, traders try to pay attention to everything that is happening in the world and related to the pound or dollar. For example, at the beginning of 2020, the chairman of the Bank of England, Andrew Bailey, made several speeches, each of which could turn into a drop in demand for the British currency. For example, Bailey drew attention to the fact that "at best, the economy will not change in the fourth quarter". For example, Bailey said that "the coronavirus continues to harm the economy and its recovery". However, Bailey did not say that the Bank of England has abandoned the idea of introducing negative rates. The markets, even at best neutral information, continued to buy the pound. Bailey stressed to the audience that the economy will recover, but according to the chairman of the BA, it will begin to do so later. With similar rhetoric made by the Minister of Finance of Great Britain Rishi Sunak. He said that the British economy may still sag before it starts to grow. Thus, we get a forecast in the style: the British economy will start to grow, but later and if there is no fourth "lockdown" or a new wave of "coronavirus" diseases. While the economy is growing in the United States, in Britain it is growing only in words.
However, everything that is happening can be described as unequivocally in favor of America. Recall that Donald Trump repeatedly said that the country needs a "cheap" dollar and accused the Eurobank and the Bank of China of currency manipulation. Now the dollar is finally falling, and it can be for as long as it wants. In the article on the euro/dollar, we have already noted such a factor as a change in the global trend. If you look at the monthly timeframe for the pound, you get about the same picture: the British currency has fallen against the dollar since 2007. Sooner or later, any trend ends. Thus, we are now witnessing the emergence of a new upward trend that will be relevant over the next 5-10 years? Therefore, all the fundamental factors do not play any role now? The pound has been falling for 13 years, but any process comes to an end?
In light of this assumption, it can also be concluded that all future UK disappointments will also not matter much to the pound. For example, the "Scottish" question. There are already reports that dissatisfaction with London's policies continues to grow in Scottish society. In the parliamentary elections to be held on May 6, the Scottish National Party may receive a record number of votes, which will give it additional strength to negotiate with the government of Boris Johnson. It is unlikely that Nicola Sturgeon is counting only on the consent of Boris Johnson, which will be able to get the method of "washing and rolling". Most likely, the First Minister of Scotland has hidden trumps up her sleeve, which she will only play as a last resort. Potentially, the UK could lose Scotland and, of course, these are new problems for its economy. But if the pound is already almost guaranteed to grow in the coming years, it turns out that this also does not matter anymore?
The average volatility of the GBP/USD pair is currently 93 points per day. For the pound/dollar pair, this value is "average". On Friday, January 22, thus, we expect movement within the channel, limited by the levels of 1.3610 and 1.3796. A reversal of the Heiken Ashi indicator downwards will signal a new round of downward correction.
Nearest support levels:
S1 – 1.3672
S2 – 1.3611
S3 – 1.3550
Nearest resistance levels:
R1 – 1.3733
R2 – 1.3754
Trading recommendations:
The GBP/USD pair has started a new round of upward movement on the 4-hour timeframe. Thus, today it is again recommended to trade for an increase with a target of 1.3794 before the Heiken Ashi indicator turns down. It is recommended to consider sell orders with targets of 1.3611 and 1.3550 if the price is fixed below the moving average line.