GBP/USD. Hong Kong can cause serious deterioration in relations between the UK, US and China

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The British pound has recently been trading very attractively against the US dollar. The pound/dollar pair has a pronounced trend, which clearly adds to its fans among traders. However, unfortunately, there is still very little news from the UK. The authorities of the UK decided to relax the quarantine measures and allow public events to be held in the open air, as well as to open almost all public institutions. However, Prime Minister Boris Johnson urges Britons to wear masks in crowded areas. Meanwhile, a group of British scientists has warned of a high risk of a second wave of the disease. Research and simulation data suggest that local COVID-19 outbreaks are becoming very likely, all of them can form a second wave. A large number of high-ranking UK doctors have signed the official warning. The authors of the document say that it is very difficult to predict the epidemic's development in Great Britain, but the experience of other countries shows that there are outbreaks of the disease after removing the lockdown. If one or more of these outbreaks are missed, the entire country could be re-engulfed in a pandemic. There is also little news on Brexit, or rather on the negotiations between Brussels and London. Over the past two weeks, many media outlets have written and mentioned the failure of the next stage of negotiations, then about the resumption, then about another failure, then about possible concessions from the European Union on the issue of fishing. However, there is still no officially confirmed positive information. Therefore, the conclusion we can draw is this: the British pound continues to grow in price solely due to the US dollar and what is happening now in the United States. Therefore, when the situation in the US gets better (the situation with the coronavirus), the demand for the dollar may begin to recover, and traders may remember that there were no fundamental and macroeconomic reasons for the pound's growth. Moreover, the UK economy is expected to lose more % of its GDP than the US or EU, and the future of this country is not defined at all, since Brexit will end on December 31, 2020, and no one knows what and how it will turn out after this date. It has nothing to do with foreign policy or economic issues.

One of the current most pressing foreign policy issues is associated with Hong Kong. What does it matter for both the UK and the USA? The leaders of these countries call themselves friends, and claims to China are approximately the same. Thus, the Hong Kong problem is directly related to both the UK and the US. Recall that China, by adopting the law on national security in Hong Kong, violated the 1984 agreement with London, according to which Hong Kong will remain independent from Beijing in most matters until the end of the transition period, which ends by 2047. London has already announced that all Hong Kong citizens can obtain British citizenship and the opportunity to work in Britain if Beijing does not change its mind. Beijing did not change its mind, passed the law and is now trying to confront a verbal skirmish with Washington and London, while the first is actively developing sanctions packages against the Chinese and Hong Kong authorities. Washington has already stopped delivering military goods to Hong Kong. In addition, the US Department of Commerce has suspended a number of trade preferences in relation to Hong Kong, which was announced a week earlier by department head Wilbur Ross. Ross said that "technologies important for ensuring national security may fall into the hands of the People's Liberation Army of the People's Republic of China and the United States is not ready to accept these risks, therefore they withdraw Hong Kong's special status." "The provisions of the Ministry of Commerce, allowing the introduction of preferential treatment for Hong Kong compared with China, including access to exceptions in export licenses, have been suspended," the head of the Ministry of Commerce said. US Consul General in Hong Kong Hanscom Smith said, "Our interest is to guarantee Hong Kong the high degree of autonomy that was promised to it. It worked very well for us, meeting our economic and commercial interests." "The application of the National Security Act is a tragedy for Hong Kong," said the US Consul General in Hong Kong. "Hong Kong has been successful precisely because of its openness, and we will do our best to preserve this."

Interestingly, the Chinese authorities do not believe that they violated any agreements or international law. Formally, the new law is aimed at combating terrorism, separatism and foreign collusion against China. Beijing will create a special security authority in Hong Kong that will be subordinate only to the Chinese capital, which will decide the fate of Hong Kongers who come to its attention. Experts say that no terrorist attacks have been observed in Hong Kong in the past six years, so the new law is not aimed at terrorism, but at the opposition. It is noted that mass protests and rallies were attended by up to two million people with a total population of seven million.

Meanwhile, there is a new coronavirus outbreak in Hong Kong at the moment. The city authorities have already decided to close all schools for quarantine and tighten quarantine restrictions among the entire population. So far, we are not talking about a new wave of the disease, only 147 new cases were recorded in the last week. However, for Hong Kong, with its highest population density, these 147 cases may be enough for the city to be engulfed by a new wave of the epidemic.

Thus, in the near future, not only the issue of Brexit and the future relationship between London and Brussels will be resolved, but also the future relationship between London and Beijing, which may also become very strained.

In technical terms, the pair continued its upward movement and reached the level of 1.2666 last Friday. Thus, despite the fact that the correction has formally begun now (the previous high was not overcome), we believe that the upward trend remains and has good chances to continue. All the main technical indicators for both trading systems are directed upwards, and the fundamental background from the UK, which could put pressure on the British pound, is ignored.

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Recommendations for the GBP/USD pair:

We advise you to continue buying the pound/dollar pair as it continues the upward trend, mainly using the readings of the 4-hour timeframe. Volatility remains the same, about 100-130 points per day, and is comfortable for trading. The closest targets for buy orders are the resistance levels 1.2698 and 1.2867. They will be revised on Monday.

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