FX.co ★ GBP/USD's 1.4000 target mark is close at hand

Whatever happens in Britain, be it the economic crisis, BREXIT, or the aftermath of the coronavirus pandemic, the pound sterling follows its path no matter what. This phenomenon, which is contrary to common sense, can only be justified by the speculative behavior of market participants.

In simple words, there is a kind of distribution of hamsters, where, according to the results, a very expensive pound will be shifted onto their shoulders, while speculators will change their trading position.

22% - remember this figure, as it represents the growth of the sterling in just 11 months. This is, perhaps, one of the most profitable currencies from the Major basket, but as soon as financial analysts touch it, there is a resonance, since there should be no increase in value, but there is.

How long can we expect an increase in the volume of positions in GBP?

This question worries many traders working with this trading instrument - there are many opinions, as well as the fear of a collapse in value.

If we proceed from the fact that common sense will sooner or later break into the market, then the pound sterling is already on the verge of a reversal, since it is extremely difficult to hide the pressing problems.

We can say that the easing of restrictive measures will have a positive effect on the sterling - yes, this is so, if there were no global problems associated with the economic consequences of the pandemic.

Thus, for the UK economy to recover, it takes not months, but years to return to pre-crisis levels.

This thought reflects the judgment of almost any fundamentalist, now let's talk about what is happening in terms of technical analysis. Things are no better, the upward movement in a range of 2500 points brought us not just to the levels of 2018, which is not typical in itself, but up to the maximum of the previous medium-term trend. I mean the 1.3750/1.4350 range where the market turned in 2018.

There is an assumption that this range can lead to a repetition of history, which will lead to a stop of the upward movement in the market

The sellers of the sterling have something to cling to, both in technical and fundamental analysis, they only need a moment in time.

What is happening in the market at the moment?

The pound sterling has once again updated the local maximum of the medium-term trend, but this is not surprising to anyone, the most attractive moment is the fact that the price area of the psychological level 1.4000 (1.3950 / 1.4000 / 1.4050) was affected.

Traders admit that the area of the psychological level could quite activate sellers, and this led to a reduction in the volume of long positions in the market.

I think it's too early to shout about the upcoming correction since small rollbacks in the structure of the upward trend have repeatedly misled traders, so you should be careful with this type of panic.

We consider short positions in the market almost on an ongoing basis, but the entry into a full-size correction should not occur once, but step by step. In simple words, a trader takes pieces of a possible move, at the same time increasing or decreasing the operation depending on the market situation.

For example, at this point, the start of the correction from the area of the psychological level 1.4000 (1.3950 / 1.4000 / 1.4050) is considered, where the entry into the position may be after the price has been kept below 1.3880 with the prospect of a move to 1.3780. This is the first step, after which the trader waits for the price to remain below 1.3750 and paving the way to the values 1.3650-1.3590.

Taking into account the scale of the upward trend, the full-size correction can amount to more than 500 points.

At the same time, due to the high speculative excitement, traders continue to consider long transactions in the market. At this time, it is quite dangerous to enter the market right in the area of the psychological level, therefore, if we consider this type of operations in the future, it will be already above 1.4050, with the prospect of moving to the maximum of 2018.

What is happening in the market in terms of indicator analysis?

Analyzing different sectors of timeframes, traders, without any surprise, see a buy signal relative to the hourly and daily periods, this is because the quotes are at the peak of the medium-term trend. The minute interval reflects a sell signal due to a local pullback

In terms of market dynamics, we have been observing a consistent decline in daily volatility for several weeks now, which suggests a cumulative process

Key levels

Resistance zones: 1.4000 ***; 1.4350 **.

Support Zones: 1.3750 **; 1.3650 **; 1.3300; 1.3000 ***; 1.2840 / 1.2860 / 1.2885; 1.2770 **.

* Periodic level

** Range level

*** Psychological level