4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: 132.9123
The British pound traded quite calmly on Friday and Monday. However, in general, its movements cannot be called calm. The pound/dollar pair calmed down only last Friday, and before that, the quotes plowed down more than 250 points in a few days, and then about 200 points up in a few days. And all this is almost in the complete absence of any macroeconomic statistics in the States and the UK. These two relatively strong movements were in no way related to "macroeconomics." It is noteworthy that they were not connected with any events in the United States since the euro/dollar pair was standing in one place all this time, and there were very few events overseas. Accordingly, in the UK, we should look for why the pound did an impressive somersault during six trading days. However, this somersault has already been left behind, and the pair now faces a new question: what's next? And a large number of factors also speak in favor of a new upward movement here. First, the pair have just perfectly worked out the 1.3600-1.3666, which we talked about as a target area for the current downward trend (a round of correction on a 24-hour timeframe). Second, there are no real grounds for strengthening the US currency now (we have already said that macroeconomic indicators overlap with other more global factors). Third, a huge amount of dollars continues to pour into the American economy, inflating the money supply and devaluing the American currency. Fourth, the euro/dollar pair also has enough grounds for new growth, and both of these pairs like to correlate with each other closely. Fifth, COT reports over the past 4-5 weeks show that major players are actively selling both the euro and the pound sterling, but at the same time, the fall of both these currencies is not as strong as the sales of major players. And this moment indirectly indicates that both pairs are preparing for a new takeoff.
Now let's figure out what to expect from the currency pair this week. It should be noted right away that the calendar of macroeconomic events in the UK is empty. There will be no single speech by Andrew Bailey, and no single important publication is planned. Thus, traders will have to focus only on American statistics and the Fed meeting. However, it is the Fed meeting that is the key event of the week. From our point of view, the Federal Reserve will not provide strong support for the US currency and will not want to do this. We have already said that the national debt in the United States has grown to $ 30 trillion. And debts need to be serviced. And the more expensive the dollar, the more difficult it is to service the debts of the American government. Thus, it is unprofitable for the States now that its currency becomes more expensive. Therefore, it can be assumed that Jerome Powell will try to avoid "hawkish" rhetoric. In addition, we have already written earlier that Washington may declare a technical default this fall since the current debt limit is not enough to service already issued bonds and make payments on them. It was stated by US Treasury Secretary Janet Yellen last week. Accordingly, now we need to get Congress and the Senate to raise the national debt limit. In addition, Jerome Powell, who is a Republican, may resign in January 2022, and, according to rumors, the most "dovish" member of the Fed's monetary committee may come in his place. At least, Joe Biden believes that the Fed should be headed by a Democrat and a person who adheres to the most lenient monetary policy. At one time, we can say that Donald Trump made a mistake by appointing Jerome Powell to head the Fed. In the following years, he repeatedly accused Powell of all mortal sins and, in particular, the Fed adheres to a too strict policy and does not want to lower the key rate. Thus, Biden will probably want to hedge his bets and immediately appoint a person who adheres to the policy that the White House needs. All this suggests that the Fed's monetary policy can remain "ultra-soft" for as long as possible. However, the American economy is recovering quickly and much faster than the UK or the EU. Based on the same considerations, we believe that the US currency will resume its decline in the near future.
Meanwhile, both good and bad news on the "coronavirus" came from the UK. The good news is that the fourth "wave" has slowly begun to slow down, and the number of daily recorded cases of the disease is falling. It is good and gives hope that the virus cannot resist vaccines and cannot infect the entire vaccinated population. The bad news is that 26 cases of the new strain have been detected in the UK, first detected in Colombia. Thus, after the "Indian" strain, the country and the whole world may also encounter the "Colombian" strain. Also, British doctors and scientists have concluded that people over the age of 40 who refused vaccination most often suffer complications caused by the "coronavirus" and die from them. British doctors also noted that the vaccine reduces the risk of death from COVID by 20 times. However, for aged people, the probability of dying from the "coronavirus" is still 35 times higher than, for example, in 35-year-olds.
Thus, the pound may experience some relief in the coming weeks, and the Fed meeting this week may support the British currency, not the dollar. At the moment, the pair's quotes are located above the moving average line, so an upward movement is preferable now.
The average volatility of the GBP/USD pair is currently 100 points per day. For the pound/dollar pair, this value is "high." On Tuesday, July 27, we expect movement inside the channel, limited by the levels of 1.3721 and 1.3921. A reversal of the Heiken Ashi indicator back down will signal a round of corrective movement.
Nearest support levels:
S1 – 1.3794
S2 – 1.3733
S3 – 1.3672
Nearest resistance levels:
R1 – 1.3855
R2 – 1.3916
R3 – 1.3977
Trading recommendations:
The GBP/USD pair continues to be located above the moving average on the 4-hour timeframe. Thus, it would be best if you stayed in purchases with the targets of 1.3855 and 1.3916 until the Heiken Ashi indicator turns down. Sell orders should be considered if the price is fixed below the moving average with targets of 1.3672 and 1.3611, and keep them open until the Heiken Ashi turns up.
