The GBP/USD currency pair also fell on Monday. This, of course, is not "black Monday", but in recent days a lot of markets have been lying down and showing negative dynamics. Thus, the pound/dollar pair simply follows the general trend. We have already talked about the fact that stock markets and the cryptocurrency market are falling now, and there is a tendency for the US dollar to grow in the foreign exchange market. For the British currency, this situation is aggravated by the fact that over the past month and a half it has risen quite seriously against the US currency. Thus, it has a place to fall. We have already talked about the fundamental reasons for this growth, but we recall that there were no special reasons for such a strong growth (600 points). Of the fundamental reasons, we can only single out an increase in the BA rate and that's it. From a technical point of view, such strong growth was expected. We wrote two months ago that we were waiting for an upward movement of 400-500 points. However, this upward movement just suggests a new, more powerful fall, since it was in this way that trading took place throughout 2021: 600 points down - 500 up. That is, the corrections were very deep. Consequently, now the pound may continue to fall to its annual lows, which are around the 32nd level. It should also be noted that the formal reason for the fall of the pound on Monday was. Business activity in the UK's services and manufacturing sectors has declined quite significantly. But at the same time, both indices remained above the 50.0 mark, and the American business activity indices also declined and were much stronger than the British ones. Thus, logically, the pair should have leveled all the losses of the first half in the afternoon. However, this did not happen. And in any case, business activity indices rarely cause such a strong market reaction.
The UK's affairs, if not bad, raise a lot of questions.
Unfortunately, the new year began the same way the old year ended. A pandemic, a political crisis in the UK, scandals in the political bohemia of the Kingdom, complete uncertainty with the "Northern Ireland protocol" and the future UK-EU relations. But there is no positive news. How the story with Boris Johnson will end is now generally unclear. Now there is active talk about his early retirement. Recall that the UK Parliament has launched an official investigation of all parties at 10 Downing Street during quarantines, which Johnson himself calls "working meetings". It is very difficult to say how this investigation will end. The Prime Minister has already refused to leave his post, saying that he "bears responsibility for what is happening." However, exactly what responsibility he will bear for his parties at a time when all Britons were forbidden to leave home and even meet with relatives is not very clear yet.
Consequently, its currency may also be affected by geopolitical tensions in Eastern Europe. Thus, in 2022, there may be not only a return of markets to "pre-crisis conditions", but the world may also again plunge into another crisis. It is quite possible that the economic one too. First, no one knows how many more new strains the coronavirus will throw to humanity. Second, it is completely unclear how the economy will react to the struggle of central banks with inflation. According to many experts, this will lead to its slowdown, which, of course, we would like to avoid, since it has been actively dispersed in the last two years. Well, the UK still has to face the "Scottish referendum" and, possibly, the change of the "ruling party". Conservatives are losing popularity among the people, so every subsequent by-election or full-scale parliamentary election may result in a resounding defeat of Boris Johnson's party if it remains so by that time. After all, now a lot of conservatives openly do not support Johnson, believing that he made too many mistakes in his post.
The average volatility of the GBP/USD pair is currently 81 points per day. For the pound/dollar pair, this value is "average". On Tuesday, January 25, therefore, we expect movement inside the channel, limited by the levels of 1.3407 and 1.3569. A reversal of the Heiken Ashi indicator upwards will signal a round of corrective movement.
Nearest support levels:
S1 – 1.3428
S2 – 1.3367
S3 – 1.3306
Nearest resistance levels:
R1 – 1.3489
R2 – 1.3550
R3 – 1.3611
Trading recommendations:
The GBP/USD pair resumed its downward movement on the 4-hour timeframe. Thus, at this time, it is recommended to stay in short positions with targets of 1.3428 and 1.3407 until the Heiken Ashi indicator turns up. It is recommended to consider long positions if the pair is fixed above the moving average line with targets of 1.3611 and 1.3672, and keep them open until the Heiken Ashi indicator turns down.
Explanations to the illustrations:
Linear regression channels - help to 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.
