4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 97.1550
The British pound continues to trade higher although there is no news, no reports, no events either in the US or in the UK. The beginning of the new trading week is empty, but at the same time, traders are not embarrassed about this, and the pound continues to rise steadily in price. We have already focused readers' attention on the fact that earlier the pound sterling maintained an upward trend, but at the same time moved in a "swing" mode. Now, there is an increased upward movement, which has almost brought the pair to the level of 1.4000, where the pound has been absent since April 2018. Just a little more, some three hundred points up, and the five-year highs will be updated. And all this, as we have already said, with absolutely no macroeconomic statistics and a mediocre fundamental background for the British pound. We have already said that in general, we can conclude about the fall of the US currency, and not about the growth of the euro and the pound. It is the US currency that has been depreciating for almost a year, and there are several reasons for this. We call them "global fundamentals", of which there are currently 2. The first is the record decline in the US economy in the second quarter, the second is the huge amounts that the US government and the Fed are pouring into their economy. Thus, these factors significantly reduce the investment attractiveness of the US economy, as well as significantly increase the supply of the dollar in the foreign exchange markets. Since demand does not change, and perhaps even decreases due to the first factor, the US dollar continues to fall logically. And paired with the euro currency, there are absolutely no complaints about this movement. But there are complaints about the movement of the pound/dollar pair. The fact is that the British economy also contracted significantly in the second quarter of 2020. And if you look at the latest GDP data in annual terms, that is, concerning the fourth quarter of 2019, when there was no pandemic in the world, then you get an interesting picture. The US GDP decreased by 2.5% compared to that period, and the UK GDP - by 7.8%. Thus, the US economy, which initially lost about 33% in the second quarter of 2020, is recovering at a much faster pace than the British economy, which lost just 19% in the second quarter. Thus, if the difference is not too great in comparison with the European economy, then in comparison with the British economy, we are talking about a three–fold gap. Therefore, the first factor of the "ratio of losses of the British and American economies" in our case simply does not work. There remains only the factor of pouring huge amounts of money into the economy, thanks to which, probably, the American one is recovering at a high rate, while the British one is frankly stalling. It is no secret that the quantitative stimulus program in the UK is about 900 billion pounds. And this is the total amount that should last until the end of 2021. In the United States, the Fed buys $ 120 billion or more in bonds every month. There are no deadlines or limits for this program. Moreover, in the UK, the government has not implemented any programs that would be designed to support businesses or citizens. If in America they almost throw money from a helicopter, then in Britain there is nothing like this. Of course, there is state support. In the form of interest-free or cheap loans. But it is much more scarce than in the United States. Simply put, America has poured far more fresh-printed dollars into its economy than Britain has poured fresh-printed pounds into its economy. But the problem is that the US dollar cannot fall forever on this factor alone. Do not forget that the UK has just left the European Union, so even though there is a trade agreement, it is just beginning to learn to live without Europe. Therefore, the negative consequences of the break with the Alliance are not yet visible and are not reflected in the macroeconomic statistics. For example, data for the first quarter of 2021 will show just how painful the gap has been for the UK. And there is reason to believe that the British economy will lose a few more percent of GDP. And the American economy continues to recover and will continue to do so in the first quarter of 2021. Thus, we can characterize the current strengthening of the British pound as "speculative". At least, this factor has a place to be. Consequently, the pound will sooner or later begin to adjust and it will simply collapse since there are no more fundamental reasons and grounds for strengthening the pound. Moreover, if you remove this factor, the British currency would have to become cheaper rather than grow. At the same time, we are not talking about the last two months, but about a much longer period.
Despite all the disappointing conclusions for the British pound, from a technical point of view, there is still a strong upward trend, which in recent weeks can even be worked out, since the "swing" has ended. Therefore, no matter what conclusions are drawn from the fundamental analysis, we still insist that you need to pay attention to the technical picture and trade based on it. It should be remembered that what happens on the chart does not always logically correspond to the fundamental background. Now is just such a case.
The average volatility of the GBP/USD pair is currently 73 points per day. For the pound/dollar pair, this value is "average". On Wednesday, February 17, thus, we expect movement within the channel, limited by the levels of 1.3844 and 1.3990. A reversal of the Heiken Ashi indicator to the top will signal a possible resumption of the upward trend.
Nearest support levels:
S1 – 1.3855
S2 – 1.3794
S3 – 1.3733
Nearest resistance levels:
R1 – 1.3916
R2 – 1.3977
R3 – 1.4038
Trading recommendations:
The GBP/USD pair has started a new round of correction on the 4-hour timeframe. Thus, today it is recommended to open new long positions with targets of 1.3916 and 1.3977 if the Heiken Ashi indicator turns up. It is recommended to consider sell orders with targets of 1.3794 and 1.3733 if the price is fixed below the moving average line.