GBP / USD resumed its downward movement in the market, breaking out of 1.2885 without undue difficulty. It even managed to move the quote towards the target level of 1.2770.
Since early September, 1.2770 has already been deemed as a good level to work a correction. However, a 5% correction is not enough to trigger a market change, but instead, a consolidation below 1.2770 is needed, preferably on a daily period. In such a case, the best option is to trade local positions, as market sentiment can provoke local jumps (Up / Down) when trading.
So, if we look at the M15 chart, we will see that the quotes were initially stuck at 1.3000, but then short positions arose, which pulled GBP / USD down to 1.2770.
It gave very high volatility at about 262 points, which is 114% higher than the average level. In fact, it was similar to over-activity observed during the March collapse, where market sentiment went off scale to the limit.
Nonetheless, traders did work for a downward move from 1.2885 to 1.2770, just as discussed in the previous review .
Thus, the daily chart indicated a 33% correction process from the scale of the medium-term upward trend.
Meanwhile, among the news that were published yesterday was the latest data on US jobless claims, which, contrary to what was expected, grew significantly.
Initial claims were revised in favor of growth from 881,000 to 884,000, while repeated claims were revised from 13,254,000 to 13,292,000. The current ones also came out with an increase to 13,385,000.
Such a poor performance pressured the US dollar locally, which resulted in a good increase in GBP / USD. However, price went down again in the market, even updating the local lows.
This is because another attempt for a trade agreement between the UK and the EU failed, which increases the likelihood of a chaotic split without a deal.
During the meeting on Thursday, UK rejected the request of the EU to abandon its plan to rewrite the Brexit agreement, even after the bloc issued a three-week ultimatum to England and threatened legal action.
"For there to be a relationship between the EU and the UK in the future, there must be mutual trust between us - both today and in the future." Michel Barnier tweeted
Vice President of the European Commission, Maros Sefcovic, then declared that from now on, neither the EU nor the UK can unilaterally modify, clarify, amend, interpret, ignore or reject the agreement.
"Breaking the terms of the withdrawal agreement would violate international law, undermine trust and jeopardize ongoing negotiations on future relations. If the bill is passed, it would be an extremely serious violation of the withdrawal agreement and international law, "added Maros Sefcovic
Until the situation with the bill is clarified and the Brexit negotiations normalize, the pound will continue to be under pressure.
In another note, important macroeconomic data for the UK was published today, one of which is the GDP in July which fell from 8.7% to 6.6%. Volume of industrial production also fell down -7.5% against the forecast of -8.9%, while the volume of construction over the same period decreased by -12.7%.
However, in the current situation with Brexit, no one looks at the statistics, since emotions exceed all expectations.
The upcoming trading week has a busy economic calendar, the first of which is the publication of latest statistics on the UK labor market. Then, on Wednesday, the Fed will hold its meeting at which many traders are awaiting specifics from the regulator, while on Thursday, the Bank of England will hold its meeting, during which the issue on Brexit may also be tackled on.
Tuesday, September 15
UK 07:00 - unemployment rate (July)
UK 07:00 - unemployment claims (August)
UK 07:00 - average wages, with and without bonuses (July)
US 13:30 - volume of industrial production (August)
Wednesday, September 16
UK 07:00 - data on inflation (August)
US 13:30 - volume of retail sales (August)
US 19:00 - FRS meeting
US 19:30 - FOMC press conference
Thursday, September 17
UK 12:00 - Bank of England meeting
US 13:30 - claims for unemployment benefits
US 13:30 - issued building permits (August)
US 13:30 - volume of construction of new houses (August)
Friday 18 September
UK 07:00 - volume of retail sales (August)
Further development
As we can see on the trading chart, GBP / USD fluctuated within 1.2770, but no clear consolidation was observed on the 4-hour chart. Thus, the pound may continue to decline towards 1.2620, especially if no trade agreement still persists regarding Brexit.
An alternative scenario considers a local slowdown within 1.2770 / 1.2860, which will be considered a regrouping of trade forces.
Indicator analysis
All the indicators on M15, H4 and D1 time frames (TF) signal sell due to the strong bearish sentiment on the market.
Weekly volatility / Volatility measurement: Month; Quarter; Year
Volatility is measured relative to the average daily fluctuations, which are calculated every Month / Quarter / Year.
(The dynamics for today is calculated, all while taking into account the time this article is published)
Volatility is at 97 points, but it may still increase even further if the quote breaks out of 1.2770.
Key levels
Resistance zones: 1.2885 *; 1.3000 ***; 1.3200; 1.3300 **; 1.3600; 1.3850; 1.4000 ***; 1.4350 **.
Support Zones: 1.2770 **; 1.2620; 1.2500; 1.2350 **; 1.2250; 1.2150 **; 1.2000 *** (1.1957); 1.1850; 1.1660; 1.1450 (1.1411).
* Periodic level
** Range level
*** Psychological level
Also check trading recommendations for the EUR/USD pair here, or brief trading recommendations for the EUR/USD and GBP/USD pairs here.
