FX.co ★ Analysis and forecast for GBP/USD on December 22, 2020

United Kingdom In Isolation

As it has already become known, after the COVID-19 mutation and the discovery of a new strain of the infection in the United Kingdom, continental Europe interrupted all transport links with the UK, effectively isolating the British Isles. It is very characteristic that a new strain of coronavirus infection, called VUI, was discovered just before the UK left the European Union. In my opinion, this is quite a significant coincidence. Perhaps this is the last time Brussels tried to reason with London about the future and very disappointing prospects of the United Kingdom and push the British authorities to sign a trade agreement. However, knowing the proud and stubborn nature of the British, there is very little chance that they will make any concessions, which means that the UK will leave the European Union without a trade agreement. In this case, further trade relations between the parting parties will be regulated according to the rules of the World Trade Organization (WTO), with all the ensuing consequences regarding duties, tariffs, and other conditions.

If you go back to the fact that more than forty European countries have fenced off from the UK, interrupting all transport links with it, then you can not call it anything but isolation. Another characteristic point that confirms this opinion is that a new strain of COVID-19 has also been detected in some European countries, in particular in the Netherlands, Belgium, Denmark, and Italy. However, no one is going to isolate these states and interrupt transport links with them, although the strain is the same. By and large, the British began to feel all the "delights" of a hard Brexit now, before the Christmas holidays. And what about British Prime Minister Boris Johnson, who was an ardent supporter of the UK's exit from the EU without any deal? He seems to be seriously worried, but he's trying to put on a good face when he's playing badly. Johnson warns the British about the imminent and very significant increase in prices and suggests that they stock up on everything they need right now. As for the Christmas holidays, they are hopelessly spoiled by the introduction of new strict restrictions. And the fact that by the end of the outgoing year the authorities promise to start mass vaccination is little consolation, from the moment of vaccination, at least 1.5-2 months must pass for about 70-75% of citizens to be vaccinated. Only in this case can we expect that the COVID-19 outbreak will come to an end and the situation will stabilize.

Daily

Despite the fact that Monday's trading opened for the GBP/USD currency pair with a significant bearish gap, after which the fall of the British currency continued, the bulls on the pound found the strength and opportunities to change the situation, and in the root. As a result, a white candle with a huge lower shadow and a closing price of 1.3461 appeared on the daily chart. It is difficult to guess what this optimism is based on. Perhaps market participants are hoping that a Brexit deal will be reached at the very last moment. On the technical side, yesterday's lows at 1.3185 represent a very strong support, a possible breakdown of which will finally bring down the British currency. Today's trading on the pound/dollar pair, at the time of writing, is taking place in a negative way. The pair shows a moderate decline, but after reaching the Tenkan and Kijun lines of the Ichimoku indicator, it began to bounce up and is ready to repeat yesterday's scenario. UK GDP data for the third quarter has already been published, which exceeded forecasts both year-on-year and month-on-month. The next step is similar statistics from the United States, which will be published at 13:30 UTC. Perhaps the US GDP reports for the third quarter will finally put all the dots in today's trading on GBP/USD.

On the trading recommendations, the current situation seems quite difficult. You can see for yourself what is happening, and this is far from the limit. I believe that the volatility in trading the British currency will only increase. The appearance of bearish candlestick patterns in the price zone of 1.3490-1.3530 on lower time frames will indicate a high probability of a decline, and the opening of short positions on the pound/dollar pair. If the pair gains a foothold above the psychological level of 1.3500, and even more so breaks the mark of 1.3528, it is worth looking for an opportunity to buy the British pound sterling.

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