GBP/USD. Brexit talks failed again. Pound afloat against the dollar solely due to US events

4-hour timeframe


In contrast to the EUR/USD pair, the British pound fell in price at the beginning and end of the trading week, and the rest of the time it grew quite strongly. A flat was not observed during the week. However, it is also impossible to say that there is a pronounced trend movement at the moment. If the downward trend persists at this time, it means that the correction in its composition is quite strong. For example, we are now witnessing one of these corrections, in which the pair has reached the upper line of the Ichimoku cloud and may even overcome it, which could become the starting point for a new upward trend. Meanwhile, in fundamental terms, the UK is completely calm. From time to time, market participants get confirmation that the negotiation process between Brussels and London is firmly in place, the parties are not going to make concessions and will only exchange mutual accusations, and that's all. This information clearly does not help the British currency, however, since everything is far from smooth over the ocean, the pound sterling still continues to stay afloat.

Last Tuesday, you could only pay attention to UK GDP for the first quarter, which declined more than expected by 1.7% in annual terms. And on Friday, the business activity index for the services sector was published, which only exceeded the forecast value by 0.1. The speech of the head of the Bank of England, Andrew Bailey, at the beginning of the week did not contain anything interesting. Prime Minister Boris Johnson also gave a speech, calling the coronavirus a disaster for the British community and economy. At the same time, Johnson believes that it is absolutely necessary to conduct a check and find out what went wrong in the confrontation with the COVID-2019 virus. The prime minister is appalled by the scale of the epidemic and the large number of victims of the virus. However, Johnson believes that the current situation is a chance to change the country for the better.

In general, nothing is changing in the UK, and the country is confidently moving towards economic collapse. Perhaps this is too loud a statement, but who could have guessed six months ago (when the coronavirus was already known) that this virus would lead to such economic consequences and have such a high death rate? But COVID-2019 has not disappeared. In fact, it was possible to stop the spread of this virus in European countries, including the UK. However, this does not mean that the virus is gone forever. A striking example of this is the United States, where even the first wave has not yet finished. Moreover, in many other countries around the world, where governments have relaxed or lifted quarantines, there are new outbreaks of infection. Thus, no one knows how many more lives the coronavirus will take, what measures governments around the world will have to take to stop future waves, and when a vaccine will be invented against this infection. It is a vaccine, not a cure. Because even though drugs exist, they can not cure everyone, and they can not stop the spread of infection at all. In addition to the serious consequences of the epidemic, the UK still has to deal with Brexit, and its negotiations fail from time to time.

In fact, the negotiations with Brussels is still the number one topic for the British pound. Just last year, Johnson triumphantly won the election, first in the election of prime minister, and then in the parliamentary elections, which made it possible for London to finally end the parliamentary wars over the divorce with the European Union. However, as the next six months showed, Johnson and his government could not achieve anything positive for the country. What is the point of the current version of Brexit, if it was exactly the same one that was proposed by Theresa May? That is, the current option is, in fact, a hard Brexit, which could have been implemented in 2016-2017, that is, without a three-year delay. It turns out that the main point in Johnson's victory and the Conservative party is that the policy of these diplomats do not suit the majority of the British people. The point is simply that the majority of British people wanted to finish the epic of leaving the EU as soon as possible. Which the Johnson government is now implementing. The UK will be facing the most serious financial losses on the horizon. By the end of 2020, Britain will lose at least 70 billion pounds due to the divorce itself in the EU, and from 2021 will begin to lose money due to quotas and duties that have begun to operate, according to the rules of the World Trade Organization. Well, the financial losses due to the epidemic and the coronavirus crisis are not even worth talking about now. In general, as we have said in recent years, rescuing the sinking British pound is the work of the US dollar.

The situation developed in the United States in 2020, which made it possible for both the euro and the pound to grow. The political crisis in America, the absurd policy of US President Donald Trump, his contradictory statements, failed to fight the epidemic, being the first in the world in the number of infections and deaths from the coronavirus, the constant wars with the Democrats, impeachment proceedings, a trade war with China, the book of the former national security adviser John Bolton, who reveals many aspects of Trump, and the racist scandal, which has led to several weeks of rallies and protests across the country, and in which Trump once again showed himself not at its best, all this could be the reasons why the US currency has ceased to become more expensive in the long term. Therefore, this entire year could turn out to be quite balanced for both the British pound and the US dollar. From our point of view, the future will solely depend on whether Trump is re-elected for a second term or not.

Trading recommendations:

The pound/dollar pair started an upward movement on the 4-hour timeframe. Thus, you are advised to consider long positions with targets of 1.2587 and 1.2624. You are also advised to return to sell orders, but not before you pin the pair below the critical line with the first targets of 1.2250 and 1.2168. All goals will be reviewed on Monday.

The material has been provided by InstaForex Company -