Higher linear regression channel: direction – downward.
Lower linear regression channel: direction – upward.
Moving average (20; smoothed) – downward.
The British pound sterling was trading more or less calmly against the US currency on Friday. It seems that traders also need a break from time to time. The last two weeks for the pound/dollar pair have been frankly stormy. The pair were thrown from side to side and passed 150-200 points in different directions. This is not to say that such movements were unfounded or illogical, although perhaps unexpected for many. The problem is that the fundamental background for the pair remains extremely strong and important. We have already discussed the American situation many times. The presidential election, especially the 2020 presidential election, will be one of the most important in the country’s history, so many traders try not to take unnecessary risks when working with the US currency. If paired with the euro currency, such caution looks like a flat or a very similar movement on the chart, then paired with the pound, which has its no less strong fundamental background, it looks like utter chaos. For the UK and the British pound, the fate for the coming years continues to be decided. A lot has already been said about Brexit, however, the problem itself does not go away. Last week, the next EU summit was to be held, where issues related to the trade deal between Brussels and London were to be resolved. However, a few days before the start of the summit, several high-ranking officials from the European Union said that at the end of the summit, insufficient progress in the negotiations will be announced and no important decisions will be made. Adding fuel to the fire was British Prime Minister Boris Johnson, who once again accused the European Union of unwillingness to provide Britain with a “Canadian” version of the trade agreement. Johnson said that the European Union, despite Brexit, wants to bind the UK to itself as much as possible, which Britain itself wants to avoid since it wants to be as independent as possible. According to Johnson, the European Union should have met Britain, which has been in the bloc for 45 years. Thus, even before the summit began, it became clear that there was no news to be expected from there. Already during the summit, it became known about the possible infection with the “coronavirus” of the head of the European Commission, Ursula von der Leyen, who left it in the midst of it. And, accordingly, the official statement that followed the summit and spoke about the lack of progress was not a surprise to anyone.
The European Council called on all market participants to prepare for a “divorce” without an agreement. Of course, there were calls from London for prudence. According to the Europeans, London must make certain concessions if it wants to get a deal. European Council President Charles Michel said: “Michel Barnier continues to negotiate, and we are ready to continue doing this. We want an agreement, but not at any cost. Equal competition, fisheries, and governance are extremely important issues for the European Union, for all its 27 member states.” Michel also expressed bewilderment at the criticism of Boris Johnson. According to him, London initially knew about the requirements of the European Union, thus, it is not clear what London’s claims are now. Thus, the negotiations will continue as expected. It seems to be as futile as before. Boris Johnson also said that the EU “refuses to engage in serious negotiations” and that he is waiting “for European leaders to change their approach to negotiations in a fundamental way”. Foreign Minister Dominic Raab, in turn, said that the European Union should not force the UK to compromise alone. In his opinion, “the parties are close to an agreement, it remains only to agree on issues of fishing and competition”.
However, although negotiations continue, even many top EU officials do not believe in the success of the deal. The EU refuses to change its position. This was stated by Michel Barnier: “If the UK wants to access the 450 million consumers in the European Union and the single market with 22 million companies, it must ensure fair and transparent competition.” German Chancellor Angela Merkel believes that “both sides must make compromises to finally reach a deal”. However, all these are words that we have been hearing for several months, and there is no real process in the negotiations. Thus, as before, we tend to assume that there will be no deal. And this threatens the British economy with serious problems in 2021. Of course, the volume of trade between the EU and the Kingdom will decrease and become less profitable for both sides. But especially for the UK, where more than 50% of exports go to the EU countries. Thus, the absence of a deal threatens Britain with the loss of a few more percent of GDP. The Kingdom will lose up to 10% of GDP by the end of 2020, and no one knows what will be the losses from the second “wave” of COVID-2019. It is worth noting that the incidence rates in the Foggy Albion remain high. Thus, it is not necessary to talk about the retreat of the epidemic yet. In general, the failure of the parties to agree will cost the British economy very dearly.
And of course, in such conditions, it is very difficult to wait for the strengthening of the British currency. If the flight of companies and firms from the Foggy Albion began in 2019. UK businesses have already asked the government to sign an agreement several times. And he does it for a reason. If the “hard” scenario could be prepared without particularly heavy losses, as Boris Johnson calls for, then this would be done. Therefore, the decline in investment in the British economy and capital outflows will continue in the coming years. This threatens a serious drop in demand for the British currency in the foreign exchange market and, in general, a drop in the attractiveness of the British pound, which a few years ago was considered one of the strongest and most stable currencies. However, times are changing. Only time will tell whether the British were right when they voted “yes” to leave the EU. As for forecasts for the further movement of the pound, we would not make it even one day ahead. It is likely that the “storm” will continue, and even based on a purely technical picture, it is extremely difficult to make assumptions now.
The average volatility of the GBP/USD pair is currently 134 points per day. For the pound/dollar pair, this value is “high”. On Monday, October 19, therefore, we expect movement inside the channel, limited by the levels of 1.2780 and 1.3048. A reversal of the Heiken Ashi indicator downwards signals a new round of downward movement.
Nearest support levels:
S1 – 1.2909
S2 – 1.2878
S3 – 1.2848
Nearest resistance levels:
R1 – 1.2939
R2 – 1.2970
R3 – 1.3000
The GBP/USD pair started a new strong downward movement on the 4-hour timeframe, however, it is difficult to say how long it will last. Thus, today it is recommended to trade lower with the targets of 1.2878, 1.2848, and 1.2817 when the Heiken Ashi indicator turns down again. It is recommended to trade the pair for an increase with targets of 1.3000 and 1.3031 if the price returns to the area above the moving average line.
The material has been provided by InstaForex Company – www.instaforex.com
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