GBP/USD. The EU is taking a calm stance and is waiting for further action from Johnson, who is putting the UK's reputation

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All the latest rumors and conversations concerning the UK are exclusively related to Boris Johnson, his latest bill "on the internal market of Great Britain", as well as about a possible conflict with the European Union. Traders were completely uninterested in the Bank of England meeting and completely forgot about the failed negotiations between London and Brussels regarding the trade deal. All the attention of traders and also the international community is now focused on the British Parliament, which has already pre-approved the Johnson bill. Thus, most likely, after it has been finalized and corrected, the parliament will also approve and adopt it. There is one very important remark here. Formally, "the parliament will accept it", in fact - "it will be accepted by the Conservative Party", which formed a "majority government", so it does not depend on the opinion of the opposition forces. Therefore, it should be clearly understood that Johnson's law is approved only by Johnson's followers, but not by the opposition, former politicians, former Prime Ministers, and other high-ranking officials. However, at the very beginning of his administration, Johnson quickly made it clear to party members that those who disagree with the party's policies will not be members of this very party. Therefore, there is no doubt that the conservatives are simply afraid of Johnson, thus, they will blindly follow him, approving almost any laws and bills.

The most important thing that the whole world can't understand right now is Boris Johnson's tactics. On the one hand, it seems to be a sign of a good player in the international arena, a good politician and leader. On the other hand, Johnson is just not proven to be a good politician and leader (in our humble opinion). The world community does not understand what Johnson is trying to achieve? His bill, which openly violates the agreement with the European Union, is an attempt to put pressure on the European Union to be more compliant in negotiations on a trade agreement? But then why did this bill "come up" only in mid-September, and not in July, for example, when there was simply more time for further negotiations? Boris Johnson is trying to "spread the straw" in case the European Union does not agree to the terms of London and leaves it without free trade? Johnson himself said that the European Union can apply a "food blockade" and it is for insurance that the bill "on the internal market of Great Britain" is needed. In fact, this bill allows the British government to change, cancel the rules of customs transport on the border between Northern Ireland and England, if London and Brussels do not agree on a trade agreement before January 1. That is, in fact, London has not yet violated any points of the agreement with the European Union on Brexit. The same bill clearly prescribes the supremacy of decisions of the British government. If the second option is true, then Boris Johnson cannot fail to understand that in the event of a real violation of the agreement with the EU, sanctions will inevitably follow, courts will follow, and proceedings that may drag on for many years. And this is not just a trial, there will be consequences. And not only from the European Union, which will act as the affected party. Already, for example, Joe Biden said that if the agreement with the EU is violated, it will greatly complicate negotiations with Washington on a trade deal with the United States. Not to mention the fact that it will be possible to put an end to the trade deal with the European Union, which in theory can be concluded at any time and after January 1, 2021. Thus, it is very difficult to find the goal that Boris Johnson actually pursues.

Or perhaps there is no hidden goal. Perhaps Boris Johnson is simply acting on the principle of Donald Trump, who, if he doesn't get what he wants, begins to pour accusations, begins to openly conflict. Maybe Johnson, not having received a free trade agreement, simply starts openly plotting the EU's machinations. It certainly sounds quite strange, given that we are talking about the highest political circles, however, this option cannot be completely excluded. Moreover, the bill was criticized by everyone who could do it. In other words, almost everyone understands what the consequences will be for Britain if Johnson really goes to violate international law. This is a disgrace to Britain and a blow to its reputation.

Meanwhile, the head of the European Commission, Ursula von der Leyen, said that a deal with London could still be concluded. It cannot be said that after these words of Ursula, the pound soared up, because in the world, in principle, few people believe in the possibility of signing this agreement. "It is better not to be distracted by questioning the existing international agreement that we already have, and focus on achieving it - we have little time," the head of the European Commission said. And, frankly, her words make you wonder if the European Union is going to be saved under Johnson's pressure. Is there some secret trump card in Johnson's sleeve that the EU knows about? Top officials of the European Union regularly stated that London itself fails the negotiations, delays them, does not make concessions when it needs an agreement more. EU leaders have criticized the actions of Boris Johnson, who refused to extend the "transition period" and set deadlines for negotiations on his own. Now it turns out that in the last month of negotiations, "we should not be distracted and focus on reaching an agreement"? It looks very strange, and market participants don't even seem to know how to react to it. In addition, Ms. Von der Leyen called London's demarche "a very unpleasant surprise", although we would call it "arbitrary".

Thus, European leaders have criticized London's actions, but have not yet begun to take any retaliatory actions. In fact, the European Union can now wait for the actual violation of the current agreement and only then start working in this direction. It seems that this bill is another bluff by Boris Johnson, which has so far led to nothing but casting a shadow over the UK. Well, we can only monitor the situation, but it will be extremely difficult for the pound to show growth in the coming weeks or even months. Salvation can only come from across the ocean.

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Trading recommendations for the GBP/USD pair:

The pound/dollar pair began to correct after a strong round of downward movement. The pair entered the Ichimoku cloud on the 24-hour timeframe and is now trading inside it. The further fall in the pound depends entirely on the fundamental background of the UK. Overcoming the Senkou Span B line will strengthen the current "dead cross" and increase the probability of continuing the downward movement. Thus, we recommend that you wait until the correction is completed and resume trading downwards with the targets of 1.2832 and 1.2683 after the MACD indicator turns down.

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EUR/USD. US dollar - European currency.

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The past trading week has clearly shown that the market does not have enough ghostly hints from Jerome Powell that the economy is recovering at a higher pace and in general everything can be fine. Recall that since mid-March, the European currency has been rising in price almost non-stop in a pair with the US dollar. If the first weeks of this growth were clearly associated with the recovery after the severe fall of the euro currency (markets in the first weeks of the pandemic rushed to buy the US dollar, believing that it is the most stable currency and the best choice during the next crisis), then in the following weeks and even months, traders have more consciously invested in the euro currency. The reasons for this behavior of market participants all this time lay on the surface. Such a number of crises that the United States faced in 2020 could not but provoke a sell-off of the US currency. As a result, the US dollar lost 14 cents and froze in place. For almost two months, trading has been held in a narrow range, with a width of only 200 points. Buyers can not find new reasons for new purchases of the euro currency after it increased by 13-14 cents. Further, sellers simply can't find reasons for their activities, which involve selling euros and buying dollars. Indeed, what are the reasons to buy the dollar now? There are no economic reasons. Even though the US economy has started to recover and the forecasts for GDP, unemployment, and inflation have been revised for the better by the Fed, we should not forget that the US economy suffered a record loss of 32% in the second quarter. We have talked about this many times, however, it is really an extremely important factor. However, the European economy lost just 12% in the second quarter. Now there is a reasonable question: is it easier to recover from 32% or 12%? Thus, even with the increased pace of recovery, the economic situation in America may remain worse than in the European Union. Given the fact that traders persistently do not want to buy the dollar, even taking into account the need for a corrective movement, it seems that they agree with our conclusions and arguments.

However, not only economic reasons are important for the currency market now. The epidemiological picture of the European Union and the United States also eloquently indicates which of the currencies should become more expensive. In the US, in fact, there was no first or second "wave" at all. There was one wave that started back in March of this year. Almost immediately, the incidence rates rose to 30-40 thousand per day, then followed a small rollback to about 20 thousand new cases per day, then an increase to 60-80 thousand cases and now a new rollback to 40-50 thousand. Thus, if you look at this graph, you can actually see two waves, however, we believe that in the case of an epidemic, a new outbreak can be considered a wave. For example, in the European Union, in the most affected Italy, the number of cases of "coronavirus" increased in March and April and at highs was 6-7 thousand per day. However, from April to July, the indicator decreased and eventually came to the figures of 200-300 new cases per day. In other words, the incidence rate has dropped to almost zero. The wave ended. Only in recent weeks, the indicator has slightly increased and now it is 1-1.5 thousand cases per day. However, this is not a flash, it is only a small increase. In Spain, there is really a new outbreak, as 10-25 thousand new cases are recorded daily. It's the same in France. Thus, among all EU countries, only France and Spain are again at risk. Therefore, we believe that the epidemiological situation also remains more favorable in the European Union.

As for the vaccine, we would not pay attention at all to all these loud statements by Donald Trump that vaccination will begin in October and other messages of a similar nature. In this issue, as in all other issues related to the "coronavirus", you need to trust doctors and epidemiologists, and not Trump or other politicians who simply pursue their own personal goals. And even if these goals are expressed in the interests of the state, this does not change the picture of the state of affairs in this matter. Trump currently needs to be re-elected for a second term, so he will promise a vaccine before the election, vaccinate the entire population, start using a vaccine that has not passed all the necessary clinical trials, and in case of problems, blame all the doctors and pharmaceutical companies. Doctors and virologists have said almost from the very beginning that creating a new vaccine is a very long process that can take from a year to two years. Actually, in practice, this is likely to happen. The vaccine, which will be available to the public, should be expected by the middle of next year.

And the third factor, which is also very important, is political. Elections in the United States is a special process. An election involving Donald Trump is an even more special process. The US dollar is probably under pressure due to the fact that investors and traders do not understand who will be the next US president and what to expect from him. Usually, all candidates make campaign promises, but in general, the course of the country remains unchanged. It is slightly changed, adjusted by the new president. In the case of Trump, this rule does not work. Trump has started a trade war with China, intends to continue it if he wins the election, and also intends to start a war with American companies that have moved their production to countries with cheap labor. Trump is not interested in the motivation of these companies. It is obvious that every company tries to reduce the cost of its production, which is impossible in America. The American president believes that companies should return their factories to the United States, otherwise he will raise taxes for these companies and cancel all government orders for their products. In general, a war. I don't even want to think about how this confrontation might end. We have already seen how the confrontation between China and the United States ended. Two years of a trade war, a "weak" agreement, most of the duties and sanctions remained in force, a "coronavirus epidemic", the true causes of which are hidden in the fog.

Based on all the above, now the US dollar can count on maximum technical corrections, and the positions of the European currency look much more attractive.

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Trading recommendations for the EUR/USD pair:

The technical picture of the EUR/USD pair on the 24-hour timeframe shows that the price continues to trade in the side channel of $ 1.17 - $ 1.19, occasionally making attempts to exit it. A slight upward bias is present, however, this is not a trend. The Bollinger Bands clearly show that the flat is currently continuing. Thus, you can trade between the upper and lower bands or wait for quotes to exit this channel.

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Technical analysis of EUR/USD and GBP/USD on September 18

EUR / USD

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The euro/dollar pair retested the most important levels of 1.1700-40 (lower limit of the monthly cloud + weekly short-term trend + upper limit of the daily cloud) which resulted in the formation of a daily rebound. After that, the pair returned to the day cross, the levels of which can be assigned today at 1.1827 - 1.1875 - 1.1907. On the other hand, it is possible that next week's closing will not make important changes to the current situation, so uncertainties around the pair's movement and development within the past formed limits will continue.

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The euro formed a rebound from the supports of the bigger time frames yesterday. Due to this, the bulls used them in the smaller time frames and now, they have support from all analyzed technical instruments. If the rise continues, the classical pivot points (1.1887-1.1928-1.2002) will be resistances during the day. In turn, the key supports that are currently pulling are located today at 1.1844 (weekly long-term trend) and 1.1813 (central pivot level). If the price consolidates below the mentioned levels, it can affect the current balance of forces on one-hour chart. Nevertheless, it will be likely to discuss the advantages and prospects for the bears only after breaking through the support of 1.1740-00 in the upper time frames.

GBP / USD

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Yesterday, the bears attempted to obtain dominance, but they gave up by the end of closing and returned to their original positions. As a result, the pair is still in the several significant Ichimoku levels of the bigger time frames (daily cross levels + the upper limit of the daily cloud + the weekly short-term trend) in the level of 1.30. A consolidation above this level will allow bulls to make further plans and hope for a rise to the next pivot points 1.3121 (daily medium-term trend) and 1.32 (historical level + final level of the daily Ichimoku cross). If the players failed to take initiative and break through the levels can inspire again the opponent to new feats. In this case, the pivot point will be the level of 1.27 (weekly and monthly Fibo Kijun + the lower limit of the daily cloud).

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Despite yesterday's correction to the weekly long-term trend, the bulls retained their advantage in the smaller time frame. Today, the key supports are located at 1.2944 (central pivot level) and 1.2891 (weekly long-term trend). If we work above these mentioned levels, the bulls will remain dominant. Now, the reference points for the upward movement to continue are R1 (1.3024) - R2 (1.3078) - R3 (1.3158). A consolidation below 1.2944 - 1.2891 will affect the distribution of forces and changes in the current balance. In this case, support levels will be S2 (1.2810) and S3 (1.2756). Here, the main task will be to restore the downward trend, the minimum extremum of which is now located at 1.2762.

Ichimoku Kinko Hyo (9.26.52), Pivot Points (classical), Moving Average (120)

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Indicator analysis. Daily review on EUR / USD for September 18, 2020

The pair traded downward on Thursday and tested the support level 1.1758 (white bold line), then the price moved up by 111 points. Today, the upward trend may continue. No news is expected as per the economic calendar.

Trend analysis (Fig. 1).

The market may continue to move upwards from the level of 1.1850 (closing of yesterday's daily candlestick) with the target at the historical resistance level 1.1912 (blue dotted line). In case of testing this line, the upward trend may continue with the next target at the upper fractal 1.2012 (red dashed line).

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Figure: 1 (daily chart).

Comprehensive analysis:

- Indicator analysis - up;

- Fibonacci levels - up;

- Volumes - up;

- Candlestick analysis - up;

- Trend analysis - up;

- Bollinger lines - up;

- Weekly chart - up.

General conclusion:

Today, the price may move upward from the level of 1.1850 (closing of yesterday's daily candlestick) with the target at the historical resistance level 1.1912 (blue dotted line). In case of testing this line, the upward trend may continue with the next target at the upper fractal 1.2012 (red dashed line).

Another possible scenario: upon testing the historical resistance level 1.1912 (blue dashed line), the price may move down with the target of 1.1813 - a 23.6% pullback level (red dotted line).

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Elliott wave analysis of EUR/JPY for September 18, 2020

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EUR/JPY has stalled at 123.28 for a minor correctiv rally close to 124.31 from where we expect the next downside attack towards 123.03 and after another corrective rally towards 123.91 the final decline towards 122.15 should be in stall for us. This final decline to 122.15 should complete the corrective decline in wave 2/ and set the stage for a new impulsive rally that ultimately breaks above the former peak at 127.08.

R3: 124.81

R2: 124.52

R1: 124.31

Pivot: 123.99

S1: 123.77

S2: 123.28

S3: 123.00

Trading recommendation:

We sold EUR at 123.90 and has placed our stop at 125.22 for now.

The material has been provided by InstaForex Company - www.instaforex.com