4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 106.9405
Well, the British pound was in absolute panic yesterday. The pound often reacts to various kinds of rumors and expectations, but yesterday it first fell down by 100 points, and then went up by about the same amount. Why is it even difficult to understand what it was? The reaction of traders to any important and significant event? Or is it just a banal, but sharp, technical correction against the upward trend? Recall that no macroeconomic data from overseas was received this week. Thus, traders, in fact, can only react to "coronavirus" data from overseas. Of course, it is impossible not to mention the themes of mass rallies and protests in America, as well as the deep political crisis. In fact, now half of the country has turned against Donald Trump. And along with half of America and half of the world, the coalition is led by China outside the US and Democrats inside the US. All this news, and most importantly, traders' fears for the US economic prospects, have been pushing the pound up for several weeks. However, yesterday the well-known British publication The Daily Telegraph published an article stating that an agreement with the European Union will probably not be concluded. The publication reported that the deadline, which was set by Boris Johnson himself, remains only a few days, and the parties have not managed to move forward in resolving key, controversial issues. The publication also writes that a "basic agreement" with Brussels can still be reached if the Europeans make certain concessions. However, "the UK government already expects that it will conduct trade with the European Union on the terms of the World Trade Organization," according to The Daily Telegraph. However, the British publication did not report anything new. We have been writing for several months that the probability of reaching an agreement between the British and the Europeans does not exceed 5%. Michel Barnier, the head of the EU negotiating team, has said several times that London is in no hurry to negotiate, although it has set a deadline for them until the end of July. Thus, the British are not particularly eager to reach an agreement, and there are at least four disputed issues. So, what are the chances that the parties will be able to reach an understanding in a maximum of one or two months? Therefore, from our point of view, the value of The Daily Telegraph's information can only be in the fact that this information is obtained from government circles. If even the British authorities are not particularly hiding that there will be no deal with the EU, then we really need to prepare for a "hard" Brexit. Presumably on this information, the pound plowed down 100 points. But very quickly came to its senses, as traders remembered that this is the option of ending the Kingdom's stay in the alliance and is expected from the moment when Boris Johnson became Prime Minister.
At the same time, the conflict between the United States and China continues to develop. No, it's not burning. Rather, the picture looks like a smoldering fire, from which at any moment dry grass can burst into flames, if the wind blows harder than usual and in the wrong direction. On July 22, it was announced that the White House had ordered the closure of the Chinese Consulate in Houston, Texas. According to Chinese diplomats, "this is an unheard-of escalation". Beijing also said that it will respond to these actions of the American side. In addition, representatives of China believe that "this is a political provocation and it will definitely worsen relations between the countries." As for explanations, Washington did not provide any official information about why it decided to close the Consulate. However, US State Department spokeswoman Morgan Ortagus said that "the Chinese Consulate General in Houston is being closed in order to protect American intellectual property and personal information of the American population". As expected, China immediately rejected any accusations from the American side and rejected suggestions by some media that the Consulate was on fire because its employees burned secret documents. Washington gave Beijing 72 hours to close. What will happen next, you do not need to guess for a long time. Now, most likely, there will be the closure of some American Consulate in China, which will be followed by the same angry speech of the Americans, blaming all the troubles on Beijing. The point is different. It seems that the world's two largest economies are finally on the warpath. In this situation, we can only hope that the next US President will not be Donald Trump, who is used to solving all issues from a position of force, threats and pressure. These methods work with weak opponents, and even then not always. Speaking of China, the whole world saw that the United States itself suffered from the trade standoff, and China also managed to respond to America with a "coronavirus". Joe Biden is not a panacea for resolving the issue with Beijing, but he clearly will not support further deterioration of relations with China.
In the UK, no important macroeconomic reports or events were scheduled for July 22. The same picture awaits traders today, July 23. Accordingly, market participants can only consider news that does not appear in the calendar. This category includes all speeches by Donald Trump, Boris Johnson, Michel Barnier, David Frost, central bankers and Finance Ministers of both countries. Any information about the escalation of the conflict with Beijing, the "coronavirus" in the United States and mass riots in American cities will also be interesting.
From a technical point of view, the quotes of the pound/dollar pair continue to be located above the moving average line, and both channels of linear regression continue to be directed upwards. Thus, each new turn of the Heiken Ashi indicator upward can be used to open new long positions. The fundamental background, as we can see, does not support the US currency at all, and the macroeconomic background is simply absent now. Several more or less important reports will be published on Friday, but, as we can see, traders do not particularly need them in order to conduct active trading of the pair. In this light, we will be more interested in the new COT report on Friday, which will show how the mood of traders has changed over the past days.
The average volatility of the GBP/USD pair continues to remain stable and is currently 106 points per day. For the pound/dollar pair, this value is "high". On Thursday, July 23, thus, we expect movement within the channel, limited by the levels of 1.2625 and 1.2837. Turning the Heiken Ashi indicator downward will indicate a new round of downward correction.
Nearest support levels:
S1 – 1.2695
S2 – 1.2634
S3 – 1.2573
Nearest resistance levels:
R1 – 1.2756
R2 – 1.2817
Trading recommendations:
The GBP/USD pair also resumed its upward movement on the 4-hour timeframe. Thus, the flat is canceled, and the market is dominated by buyers. Thus, it is recommended to trade for an increase with the goals of 1.2756, 1.2817 and 1.2837 (the level of volatility )before the Heiken Ashi indicator turns down. Short positions can be considered after fixing the price below the moving average with the goals of 1.2573 and 1.2512.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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