FX.co ★ GBP/USD: Will the long-awaited correction still take place?

The sterling stopped updating the local maximum of the medium-term trend in the middle of the trading week, followed by an intensive downward trend, which returned market participants below the area of the psychological level 1.3950/1.4000/1.4050.

Did common sense prevail, and speculators opened their eyes and saw the colossal level of overbought sterling and endless problems hanging over the UK economy? I want to believe it, but I feel that we have only a temporary regrouping of trade forces.

We will still have time to talk about the technical aspect, now I suggest that we again touch on the topic of the UK's economic problems, particularly the labor market. At the beginning of the trading week, the data on the unemployment rate in the country was released, which continues to grow to 5.1%. This is just the beginning, as mass layoffs may come soon. This will be due to the reduction in the number of employees in companies due to the consequences of the coronavirus crisis.

The labor market is under pressure not only from the consequences of the pandemic but also from the "golden" Brexit divorce deal. Let me remind you that in accordance with the new migration rules, it will be difficult for foreigners to continue working in the UK.

In simple terms, Brexit and the pandemic make the UK a difficult place for expats to live in.

According to the latest research from the Office for National Statistics, foreign workers are leaving the UK at the fastest rate since World War II, challenging the economy. Over the past year, 700,000 foreign workers have left London alone, and this entails huge losses for the treasury, landowners (tenants), and businesses.

"The risk is that people won't come back, so we have a skill and labor shortage, and we're constantly losing some of our production, growth, and tax revenue," said Jonathan Portes, an economics professor at King's College London, who predicts that more than 1 million foreign workers may leave very soon.

In his earlier remarks, Portes said that this may be bad news given how migration has spurred economic growth, especially in London.

Chancellor of the Exchequer Rishi Sunak and the Office for Budget Responsibility will face some of these realities this year and possibly in the March 3 budget. For the Treasury, fewer migrants ultimately mean less economic output and less tax revenue to pay off huge debts.

In fact, we once again confirm the difficult situation hanging over the UK economy and the growth of the national currency is inappropriate here and carries an exclusively speculative character.

What is happening on the trading chart?

The first thing that catches your eye is this intense downward movement of the price with a scale of more than 250 points. On the one hand, this is a significant price change, based on short-term periods, but if we switch the trading chart to the daily interval (D1), we will see that nothing drastic has happened in the market. In simple words, the quotes, as before, follow the peak of the medium-term trend. What we saw on a scale of 250 points is regarded in the market as nothing more than a pullback.

Speculators working on the appreciation of the sterling are still in the market. It is not excluded that with the media reports, they will again continue to pump the market with long positions.

Thus, even with the information that the UK economy is not in the best shape, it still does not give us full confidence that the market will go down* (the weakening of the pound*).

Speculators have already proved in practice that they follow the emotional mood that the world's mass media impose on them.

Based on this analysis, we, as before, should operate with a short-term perspective on the market.

Expectations and prospects

As long as the quotes are below the area of the psychological level 1.3950/1.4000/1.4050, it is possible to talk about a further rollback in the direction of 1.3800-1.3750. To attract the most attention from sellers, the quotes need to stay below 1.3700/1.3750 in a four-hour period. In this case, there may be a full-sized corrective move in the market.

An upward development will most likely occur if the price is kept above 1.4050, where the local maximum of the medium-term trend of 1.4224 will be hit.

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

Analyzing different sectors of time frames, we see that technical instruments on the minute and hour periods signal a sell, due to the process of a rollback from the trend high. The indicators on the daily period, as before, following the global trend, signal a buy.

In terms of market dynamics, there is an acceleration in the market, where during the period of three trading days, the daily indicator exceeds the average level of volatility which indicates a high interest from speculators.

Key levels

Resistance zones: 1.4000 ***; 1.4350 **; 1.4550; 1.4700; 1.5000 ***.

Support Zones: 1.4000 ***; 1.3750 **; 1.3650 **; 1.3300; 1.3000 ***

* Periodic level

** Range level

*** Psychological level