FX.co ★ Overview of the GBP/USD pair. January 21. Is there a future in the relationship between the UK and the EU?

4-hour timeframe

Technical details:

Higher linear regression channel: direction - upward.

Lower linear regression channel: direction - upward.

Moving average (20; smoothed) - upward.

CCI: 70.2057

During the last trading day, the British pound rose to the Murray level of "+1/8" - 1.3702 once again and failed to overcome it. Thus, in total, the quotes of the pound/dollar pair have already worked out this level four times and each time there was a rebound. However, we still believe that this is the case when each subsequent rebound increases the probability of overcoming the level. If you look at the situation as a whole, it becomes clear that each subsequent rebound led to a smaller pullback than the previous one. For example, the rebound on January 4 triggered a 250-point pullback. The rebound from January 14 is a 180-point pullback. Of course, from a fundamental point of view, the growth of the pound sterling still raises a lot of questions. We have already discussed them and written about them many times. There have been no responses since then. However, we must accept reality as it is. In general, the pound continues to grow and nothing can be done about it. In principle, we can only wait for the level of 1.3700 to be overcome to confidently state the continuation of the march to the north.

As we have already said, the "foundation" is now completely ignored. There are no clear and understandable reasons why the pound rose to 1.3700 at all. The market is ruled by the big players, who are often guided by completely different factors when making trading decisions. For example, the latest COT report, which just shows the actions of professional traders, showed a strong increase in the number of buy contracts. Accordingly, major players are even now finding reasons for new purchases of the British currency. And, accordingly, these reasons are not macroeconomic, not political, and not epidemiological. Therefore, as before, we can only trade according to the trend, that is, follow the majority.

As for the "foundation", the most important topic for the British pound (Brexit) is no longer such. However, no sooner had Britain and the EU officially completed the "divorce" than many experts and economists began to predict serious problems for the British economy. They did it before Brexit, but after Brexit and with a trade deal in place, they didn't stop doing it. Accordingly, the British economy will likely contract in early 2021. But this factor is not taken into account by the markets.

Also, many experts predict that the UK and the EU will have long years of disputes, courts, and disagreements that will concern their coexistence and interaction in many areas. As we have already said, the trade deal is meant to regulate the trade relations between the Kingdom and the Bloc. Of course, in addition to trade, it also contains rules for other areas. But for the service sector, there is practically nothing in this deal. And for the UK, the most important sector is the service sector, which accounts for up to 70% of its GDP. Thus, we can say that the UK got the main thing that it wanted - independence from the EU. However, in terms of the benefits of the agreement itself, the deal is not so great. Many experts note that a large number of issues that London and Brussels will face in any case are not spelled out in the trade agreement. Thus, the UK can repeat the fate of Switzerland, which is in constant negotiations with the EU.

The UK has gained sovereignty and independence, but from an economic point of view, 2021 may be a failure, as well as 2020. However, all this does not interest the market participants at the moment. It seems that the US dollar remains the "navel of the earth". Of course, in 2020, the United States faced almost all kinds of crises that could only be (we wrote repeatedly about the "four types of crises"), but 2020 is already over, and the power has changed, and Donald Trump has left. It would be logical if this was the end of the fall of the US currency. However, everything suggests that the decline will continue. You only need to overcome the level of 1.3700. On the one hand, this is good, since such factors as "macroeconomics" and "foundation" are leveled and, in principle, you can not pay attention to them. On the other hand, the technical picture for the pound is not "beautiful", so that you can trade exclusively on it. Here, for example, is the euro currency. Since January 6, it has been in decline and during this time there have been no jerks, no unjustified reversals, no false overcome of the moving average. For the pound, the "highly volatile swing" continues, which began in early December. The pair continues to be tossed from side to side and only in the last week or two can we say that the markets have calmed down a little. But all the same, the price regularly overcomes the moving average line, after which it does not continue a new downward trend, but simply returns to the previous, ascending channel. Thus, trading on pure "technology" is also not the best idea right now. The only exception is trading on lower timeframes. We regularly provide analytics for the hourly timeframe, where the trading rules are somewhat different. It seems that right now it is trading on this most appropriate timeframe.

The average volatility of the GBP/USD pair is currently 92 points per day. For the pound/dollar pair, this value is "average". On Thursday, January 21, thus, we expect movement within the channel, limited by the levels of 1.3574 and 1.3758. The upward reversal of the Heiken Ashi indicator signals a new round of upward movement.

Nearest support levels:

S1 – 1.3641

S2 – 1.3611

S3 – 1.3580

Nearest resistance levels:

R1 – 1.3672

R2 – 1.3702

R3 – 1.3733

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 the targets of 1.3702 and 1.3733 if the Heiken Ashi indicator turns up. It is recommended to consider sell orders with targets of 1.3580 and 1.3509 if the price is fixed below the moving average line.