4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
The GBP/USD currency pair stopped growing on Friday but failed to start a correction. It is better to say this: there was practically no movement on Friday. With what in the literal sense of the word. The volatility was only 29 points, which is an absolute minuscule for the pound/dollar. Therefore, there was no point in expecting something with such volatility. Thus, the upward trend, which unexpectedly formed for many in the last week, persists, but its foundations still raise certain questions. Based on what did the pound grow by 250 points? On the one hand, everything is logical, since until last week the pound sterling had been falling against the dollar for a long time, so it is reasonable to assume that a technical upward correction has begun. And, from our point of view, this is the most logical justification for what happened last week. The second possible reason could be the omicron strain, but it is spreading faster than the wind in the UK, and Boris Johnson's words that no lockdown will be introduced before Christmas mean nothing now. Christmas is behind us and today the British government can introduce tough measures to contain the pandemic. Therefore, we are still inclined to believe that a technical correction has begun in the conditions of a "thin" market. But how long will it last? After all, the pair tried four or five times to overcome the Murray level of "0/8" - 1.3184, from which it constantly bounced. Traders may be just overclocking now before a new attempt to overcome this level. But in any case, as long as the price is above the moving average, purchases, not sales, remain preferable.
In the UK, 1.8 million people were infected in a week.
And this is in a country where 80% of the population has received at least one vaccination. Scotland and Wales, which do not want to wait until the economy gets up because of omicron, have introduced new restrictions, and Boris Johnson refused to tighten quarantine last week but may change his mind under the onslaught of the opposition this week. Especially if the situation worsens. However, perhaps this time really "everything will work out". The information came from South Africa that the wave of "omicron" in the country ended as quickly as it began. The incidence rates have stopped growing and are even showing signs of decline. Although the mortality rate from the "coronavirus" has increased, it is still much lower than during the "delta wave". Director of the Department of Health of South Africa Nicholas Crisp said that if it was a wave of the "delta strain", the situation would be "nightmarish", but most of the patients with "omicron" will transfer the disease very easily and will not even notice it. Now it remains only to wait for the confirmation of Crisp's words in the European Union or the USA, where the incidence rates are still only growing.
In any case, from our point of view, the markets are not paying any attention to the epidemic and its new "wave" yet. The situation must become much worse than it is now for panic to begin in the markets. One or another currency can begin to become cheaper only if its economy begins to suffer greatly due to the wave of "omicron". So far, there is nothing like that, although the prospects for the GDP of many countries in the third and fourth quarters have seriously deteriorated. There are also a huge number of political and geopolitical problems in the UK. However, the pound has been falling synchronously with the euro currency in recent months, so we can assume that only on American factors. Therefore, if these factors have already ceased to act, then both the euro and the pound can form new sections of the trend. However, two festive weeks can hardly be indicators for determining whether a new trend has started and whether the previous one has ended. This week, the pound may continue to show very good movements, as it did last week, but it will be very difficult to find logic in them.
The average volatility of the GBP/USD pair is currently 76 points per day. For the pound/dollar pair, this value is "average". On Monday, December 27, we expect movement inside the channel, limited by the levels of 1.3322 and 1.3474. The reversal of the Heiken Ashi indicator downwards signals a round of downward correction.
Nearest support levels:
S1 – 1.3397
S2 – 1.3367
S3 – 1.3336
Nearest resistance levels:
R1 – 1.3428
R2 – 1.3458
R3 – 1.3489
Trading recommendations:
The GBP/USD pair broke out of the side channel on the 4-hour timeframe and continued its strong upward movement. Thus, at this time it is possible to stay in the longs (since there is no correction yet) open after fixing above the moving average line. The goals are 1.3458 and 1.3489. Exit the longs if the Heiken Ashi indicator turns down on Monday. Short positions should be considered if the pair is fixed back below the moving average with targets of 1.3245 and 1.3214.
Explanations to the illustrations:
Linear regression channels - help determine the current trend. If both are directed in the same direction, then the trend is strong now.
Moving average line (settings 20.0, smoothed) - determines the short-term trend and the direction in which trading should be conducted now.
Murray levels - target levels for movements and corrections.
Volatility levels (red lines) - the likely price channel in which the pair will spend the next day, based on current volatility indicators.
CCI indicator - its entry into the oversold area (below -250) or into the overbought area (above +250) means that a trend reversal in the opposite direction is approaching.
