4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 39.7141
While we continue to quietly wonder why the pound sterling continues to be so high in the pair with the dollar, the GBP/USD currency pair itself gives unequivocal hints of a desire to continue the upward trend. While we continue to draw the attention of traders to the huge number of problems in the UK, economic and geopolitical, the British currency has almost reached the "pre-Brexit" levels. Thus, we can only wonder what is happening. Factors that may continue to support the high demand of the markets for the pound may be the following: the factor of the infusion of huge amounts of money into the American economy; the "speculative" factor. We simply do not see any other reasons for such a high rate of the British pound. Although last Friday, the pound sterling quotes fell (along with the euro currency), which traders immediately attributed to the newly increased yield of American treasuries, although there was never a direct relationship between the dollar exchange rate and the yield of treasuries, we still tend to believe that the pair will seek to resume the upward movement. We have repeatedly said that the factors of the fall of the pair are much more than the factors of growth. But what is the use of the former if they are ignored by market participants? We have already drawn the attention of traders that the European currency at least showed a two-month correction against the dollar, so now it has a "moral right" to resume the upward trend. The pound fell back only from its 2.5-year highs by 450 points and that's it.
Meanwhile, the British Office for National Statistics has published data on imports and exports with EU countries. According to the data, imports from EU countries fell by 28.8%, while exports fell by 40% in January. It is also reported that the agency previously notified that difficulties with trade due to the pandemic may complicate the identification of the consequences of Brexit. Although, from our point of view, everything is very clear. The pandemic has been terrorizing the entire world for a year. In the UK, total imports collapsed in January from 52.8 billion to 43 billion pounds. Exports for the same period decreased from 46 billion to 41.3 billion pounds. Although the import indicator has been growing steadily over the previous six months, and the export indicator has been almost unchanged since April last year. Therefore, from our point of view, the UK began to feel the consequences of Brexit and the trade deal did not help much to smooth out the entire negative effect of the "divorce" of the EU and the UK. As we said last year, the European Union will suffer from any Brexit much less than the Kingdom. And London has already begun to cry because Brussels does not allow British financial companies to enter its market and generally treats the UK unfairly, which has been in the bloc for almost 50 years. But divorce is a divorce. Moreover, it was Britain that wanted to leave the EU and not vice versa. Brussels immediately warned that London would not be able to enjoy all the privileges of EU membership without being in it. By the way, not only the British statistical agency published data on the fall in trade turnover. The German statistics agency also announced a strong reduction in imports and exports with Britain in January 2021. The agency published data according to which imports from the Kingdom fell by more than 56%, although compared to the value of a year ago. Exports decreased by 29%. Thus, traders can already fully feel the consequences of Brexit and conclude. However, the pound sterling still does not pay any attention to these statistics.
It should also remind traders that at the end of January, GDP collapsed by 2.9%. Thus, the optimistic value for the fourth quarter of 2020 may be revised for the worse. Meanwhile, the UK's Office for Budget Responsibility estimated that delays at the EU-UK border would cost the latter around 0.5% of GDP in the first quarter. Recall that due to Brexit, much stricter customs rules now apply at the border between the bloc and the kingdom, so almost all cargo is inspected and checked, hence the process of crossing the border is significantly lengthened. Experts also estimated that the new terms of trade with the European Union will cost the British 4% of GDP, and the COVID epidemic - 3%. And this is not to forget about the service sector, which is even more important for Britain than the production sector. But British companies, particularly financial ones, have lost a huge European market. How many percent of GDP will the country lose from this loss?
We should also not forget about the tense situation on the island of Ireland, where radical paramilitary forces have already informed the EU and British authorities that they are temporarily suspending compliance with the Belfast Agreement of 1998. According to these entities, neither the EU authorities nor the British authorities adhere to the Brexit agreement, and the people of the island of Ireland suffer because of this. Thus, there is potentially a possible new conflict on the island. Nor should we forget the "Scottish" question. The date of May 6 is inexorably approaching. On this day, the elections to the Scottish Parliament will be held and, according to many political analysts, Nicola Sturgeon's party will only strengthen its strength in Parliament. This means that its decision to hold an independence referendum is supported by a large part of Scotland, and Edinburgh will continue to demand official permission from London for a referendum, the outcome of which is already known (if it takes place). In general, the UK has a huge number of problems. We have been waiting for a strong fall in the pound for a long time, but as long as market participants ignore the entire fundamental background, nothing will happen.
The average volatility of the GBP/USD pair is currently 100 points per day. For the pound/dollar pair, this value is "average". On Friday, March 12, thus, we expect movement within the channel, limited by the levels of 1.3817 and 1.4017. A reversal of the Heiken Ashi indicator upwards can signal a new round of upward movement.
Nearest support levels:
S1 – 1.3885
S2 – 1.3824
S3 – 1.3794
Nearest resistance levels:
R1 – 1.3916
R2 – 1.3947
R3 – 1.3977
Trading recommendations:
The GBP/USD pair started a downward correction on the 4-hour timeframe. Thus, today it is recommended to open buy orders with targets of 1.3977 and 1.4017 if the price is fixed back above the moving average line. It is recommended to consider sell orders with targets of 1.3855 and 1.3817 if the price remains below the moving average.
