4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - sideways.
CCI: 77.9123
The British pound has been trading with a downward bias for the past week. However, on Friday, it still began an upward movement, thanks to which it managed to gain a foothold above the moving average line. As we have already said in the article on the euro/dollar, the fall of the US currency on Friday provoked several reasons, including technical and macroeconomic. But in general, the whole picture for the pound/dollar pair now looks as if a new upward trend has already begun, and in the last week, the pair was corrected. Thus, so far, our expectations are being met. As for the possible breakdown of the forecast regarding the formation of a new upward trend, the US dollar can also be helped only by the "hawkish" rhetoric of the Fed representatives and the early completion of the QE program. If this does not happen, then, most likely, the US currency will continue to tend to fall. Recall that the pound/dollar pair also failed to continue its downward movement after reaching the previous local low near the level of 1.3600. Thus, both major pairs stopped their downward movement near the lows of the previous round of the downward correction against the global upward trend.
Now let's figure out what to expect from the new week. It should be noted right away that the markets continue to ignore many macroeconomic reports. At the same time, preference is given to British statistics rather than American ones. Thus, the markets' reaction to the British reports may be relatively weak in the new week. Nevertheless, this is not a reason to lose sight of the whole "macroeconomics."
Moreover, there will be quite a lot of interesting publications in the UK this week. On Tuesday, for example, data on applications for unemployment benefits, the unemployment rate, and changes in average wages will be published. It is not the most important data, but it is now important for the markets to understand whether the state of the British economy has begun to deteriorate due to the fourth "wave" of the pandemic, which is now being observed in the UK. The same applies to the consumer price index, which will be published on Wednesday. Accelerating inflation is a widespread problem since so many central banks have stimulated their economies through monetary incentives. Inflation in Britain is not yet excessively high. Its value in June was 2.5%. However, if it continues to accelerate, this will be an occasion for the Bank of England to start curtailing incentives as soon as possible.
Moreover, in the ranks of the monetary committee of the British regulator, there has also been talk for several months about curtailing the QE program. Thus, the inflation report may affect the rhetoric of the members of the BA monetary committee. On Friday, the retail trade report for July will be published. It is also not the most important indicator, but a serious discrepancy between the actual value and the forecast value can provoke a market reaction. By and large, now there are only two questions for each of the countries studied. First: when will monetary incentives be curtailed? Second: did the economy start to slow down in the summer due to the increase in cases of the "coronavirus"? The answers to these questions will affect the dynamics of the euro/dollar and pound/dollar currency pairs. Suppose there is not much information on these topics. In that case, the fundamental situation will not change for the main currency pairs. We will continue to expect the implementation of the scenario for the dollar's depreciation in the long term.
It should also be said separately about volatility. We have already dealt with the euro/dollar pair, having concluded that this indicator is now at an extremely low level. For the euro currency, this is quite a normal picture. But not for the pound/dollar. The British currency is traditionally more volatile, so its average volatility of about 60-70 points is an extremely low indicator, although formally, it is an "average" value. However, the illustration below clearly shows exactly how volatility has decreased in recent weeks. If earlier 100-130 points per day was the norm, now it is no more than 90 points per day. Thus, we also conclude that the markets are currently trading very cautiously, clearly fearing something. And they can only be afraid of uncertainty. And this uncertainty can only be related to the future monetary policy of central banks.
I would also like to note separately that the fundamental background of a non-economic nature is now practically not coming from the UK. If earlier there were regular news about Brexit, the London-Brussels negotiations, Boris Johnson, Rishi Sunak, Scotland and its referendum, the "Northern Ireland protocol," now there is none of the above. Thus, traders can only rely on macroeconomic statistics and fundamental global factors that remain the same. Recall that we insist that the injections from the Fed in the amount of hundreds of billions of dollars into the American economy provokes a serious increase in the money supply and inflation. However, this is no longer just an assumption, as the US consumer price index jumped to a 13-year high. And after just 0.2-0.3%, it can update the 30-year anti-record. Since inflation in the same UK is much lower (twice), and the QE program is much less voluminous, we believe that the dollar may depreciate based on this factor.
The technical picture of the 4-hour timeframe now implies the resumption of the upward movement since the price has overcome the moving average. However, this consolidation is not too confident yet. Therefore, theoretically, the pair can return below the moving average line today or tomorrow.
The average volatility of the GBP/USD pair is currently 67 points per day. For the pound/dollar pair, this value is "average." On Monday, August 16, we expect movement inside the channel, limited by the levels of 1.3797 and 1.3931. A reversal of the Heiken Ashi indicator back down signals a possible resumption of the downward movement.
Nearest support levels:
S1 – 1.3855
S2 – 1.3824
S3 – 1.3794
Nearest resistance levels:
R1 – 1.3885
R2 – 1.3916
R3 – 1.3947
Trading recommendations:
The GBP/USD pair was fixed above the moving average on the 4-hour timeframe. Thus, today, you should stay in the pair's purchases with the targets of 1.3916 and 1.3961 until the Heiken Ashi indicator turns down. Sell orders should be considered if the price is fixed below the moving average line with targets of 1.3824 and 1.3797, keeping them open until the Heiken Ashi turns upwards.
