Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -217.8203
The British pound continued to decline against the US currency on Friday and Monday. It is quite difficult to say exactly why the pound is falling now. Recall that the British pound has felt great in the last year and a half when the UK set anti-records for the number of cases of the "coronavirus" and the number of deaths from it. However, the United States was also at the top of this list of anti-record holders. Nevertheless, we can conclude that the "coronavirus" itself had a relatively weak impact on the British currency. Its economic consequences are another matter. However, they could not put strong pressure on the pound in the last year and a half. Based on this conclusion, we have repeatedly drawn another conclusion: the most important factor that now affects the quotes of the pound/dollar pair is the factor of pouring huge sums into the American economy under stimulus programs from the Fed and the US government. However, the pound has been declining for quite a long time, and what could be the reasons for its fall? From our point of view, the pound is falling due to the increased risks of a new "lockdown" in the Kingdom, as well as a new round of the economic crisis. We do not know what the British government, led by Boris Johnson, is guided by when it completely cancels quarantine restrictions when the number of new cases of the disease is growing every day in the country. And it seems that most of the market participants also do not understand this. Even considering the high rates of vaccination in the country, 55 thousand cases of the disease per day are very much. Recall that the maximum value at the height of the third "wave" was 68 thousand. It turns out that the incidence rates are already close to the maximum for the entire period of the pandemic. However, the British government is quite calmly canceling all quarantine measures, believing that the vaccination of the whole adult population will be completed in the near future and the virus will not spread further. From our point of view, this is a rather strange decision. And, perhaps, even negligent. How can we not recall the words of Dominic Cummings, a former adviser to Boris Johnson, who a couple of months ago criticized the entire British government, calling it completely incompetent because of its actions to confront the pandemic in 2020? It seems that the current actions of the British authorities are also not particularly far-sighted. The most interesting thing is that the British Health Minister Sajid Javid managed to get infected with the "coronavirus," and Boris Johnson and Rishi Sunak were sent to self-isolation because they had contact with Javid. But the markets, fearing new shocks to the British economy, prefer to get rid of the pound. In addition, it can also be assumed that the "half-hints factor" plays a role in curtailing the QE program in the US ahead of time. The Fed just mentioned a few weeks ago that it could start discussing the completion of economic stimulus, and the markets immediately rushed to buy the dollar. Also, the COT report currently shows that the "bullish" mood for the pound/dollar pair is rapidly falling. However, we have repeatedly warned in our earlier articles that the pound may well fall to the area of 1.3600-1.3666. Thus, the implementation of this forecast is simply continuing. Recall that, as in the euro/dollar pair case, a new round of corrective movement continues globally, which can just be completed near the minimum of the previous round. Thus, even up to 100 points down – this will be quite an expected development of events.
What can traders expect from this week? By and large, it will be as boring as for the euro/dollar pair. In the United States, a few secondary reports will be published throughout the week, which is unlikely to cause at least some reaction from traders. In the UK, statistics will be published only on Friday. Moreover, most of this package will be equally insignificant. Traders can only pay attention to the retail sales report for June. Business activity indices in the services and manufacturing sectors are also not very interesting for the markets right now. Thus, the impact of "macroeconomics" and "foundation" will be minimal this week. Therefore, we can count on a decrease in volatility.
On the other hand, Monday showed that the factor of deterioration of the epidemiological situation in Britain might be quite enough for the pound to continue to decline quite actively. At least on Monday, the movements were quite volatile. However, we still do not believe in further strong growth of the US currency.
Thus, this week, we should continue to monitor the dynamics of the spread of the virus in Britain, as well as technical factors. There will be nothing else to pay attention to. On the 4-hour timeframe, the price is well below the moving average line, and both linear regression channels are directed down. Therefore, everything suggests that the downward movement will continue for some time. However, the CCI indicator reaching the level of -250 is considered a strong reversal signal. Today or tomorrow, there may be a sharp rebound in the price from the current minimum values for several months, which will fully correspond to our forecast, according to which the price may fall to the area of 1.3600-1.3666, and this will end the campaign to the south.
The average volatility of the GBP/USD pair is currently 101 points per day. For the pound/dollar pair, this value is "high." On Tuesday, July 20, we expect movement inside the channel, limited by the levels of 1.3571 and 1.3773. A reversal of the Heiken Ashi indicator upwards will signal a new round of upward correction.
Nearest support levels: S1 – 1.3672 S2 – 1.3641 S3 – 1.3611
Nearest resistance levels: R1 – 1.3702 R2 – 1.3733 R3 – 1.3763
Trading recommendations:
The GBP/USD pair continues a relatively strong downward movement on the 4-hour timeframe. Thus, today, it is possible to stay in sell orders with targets of 1.3641, 1.3611, and 1.3571 until the Heiken Ashi indicator turns up. Buy orders should be considered if the price is fixed above the moving average with targets of 1.3855 and 1.3885, and keep them open until the Heiken Ashi turns down.
