GBP/USD. Results of the week. America continues to increase the national debt. The UK cannot and does not want to negotiate

4-hour timeframe


The British currency also continues to trade against the American currency with an increase. However, unlike the euro, the upward movement of the GBP/USD pair seems to have stalled over the past few days. Buyers hit the resistance area of 1.2755 and could not overcome this level until the close of trading on Friday. However, a strong downward correction has not started for all this time. Thus, in general, the upward trend continues. The reasons for the growth of the British pound, as in the case of the euro, should be found in the United States. They are identical. The only difference is the fundamental background of the Eurozone, which is essentially neutral. But the fundamental background from the UK continues to be very difficult. During this week, twice from Foggy Albion, we received news that an agreement with the European Union on relations after the final break will not be reached. First, the well-known British newspaper The Daily Telegraph wrote about this, citing a source close to government circles, and on Thursday, a similar statement was made by Michel Barnier, the chief negotiator for the European Union. "Because of its current refusal to commit to open and fair competition and a balanced fisheries agreement, the UK makes a trade agreement unlikely at the moment," Barnier said, speaking to the ambassadors of the 27 EU member states after the sixth round of negotiations. According to Barnier, London is not making any attempts to break the "impasse" in which negotiations are held on four key issues at once. According to Barnier, London refuses to take effective measures on climate, environment, labor, and social law that would avoid lowering standards. The EU's chief negotiator expresses a desire to trade with London without quotas, tariffs, but also without unfair competition. Mr. Barnier also said that Brussels deeply respects the choice of London and accepts all its political decisions, but this does not mean that the EU will pay for these decisions and the choice of the British. The most fundamental issue of fishing continues to hang like a sword of Damocles over the negotiation process, threatening at any moment to cut the thin rope that is still stretched between London and Brussels. According to Barnier, Britain wants to completely expel European fishermen from British waters, which is "absolutely unacceptable". In this regard, the EU also respects the right and desire of London to be a fully independent coastal state and in the future, Brussels is even ready to accept the privileged right of British fishermen, but the common fish stocks should be managed jointly following the principles of international law. Thus, we can only once again note that the positions of London and Brussels are located at different poles of the planet Earth and it is unlikely that anything will change in the near future. It is possible, of course, that the negotiations will move forward after Boris Johnson personally visits Brussels. But there is too little chance of that yet.

Thus, from our point of view, the fundamental background for the British currency remains extremely negative, only saved by the fact that in America everything is even worse. On the last trading day of the week in the UK, business activity indices were published. In the manufacturing sector, business activity increased to a value of 53.6, and in the service sector – to a value of 56.6. However, we want to remind you that it is the UK that may become the most weakened country among all European countries from the "coronavirus" crisis. According to experts, the GDP of Britain in 2020 may be reduced by 14%. And the British have nowhere to wait for help now, they have left the European Union. If Italy, Spain, Poland, Hungary, Portugal, and others now receive billions of euros in grants and loans, for which all members of the alliance will pay, then the UK will now try to recover from the crisis itself. But at the same time and after Brexit. However, despite all these factors, the pound continues to be in demand (or the demand for the US dollar continues to decline). And looking at the discouraging situation in the United States, in principle, there are no questions why everything is happening this way. We have repeatedly said that with the current rate of growth in the incidence of coronavirus, the prospects for the American economy are generally clouded. Yes, the US Congress and the White House are likely to approve another trillion-dollar aid package by the end of this month. But what will happen if the epidemic continues to hold the United States firmly in its fist? This means that the next package of assistance to the economy will be needed in another month or two. And it turns out that America, which is very fond of living in debt, will continue to increase this very debt, which already amounts to 26 trillion dollars and will increase in 2020. Besides, it is unclear how the standoff with China will end, which could hit the American economy even harder. At the moment, it looks as if the presidential administration does not want to back down on the issue of confrontation with Beijing, but it does not want to inflame the situation with it. Washington is well aware(it has realized during the two years of the trade war) that the PRC will not go along with it. Any sanctions and duties are met with a mirror, and the fact that China is an export country, which means that it depends heavily on foreign markets(in particular, on the US), does not stop Xi Jinping from responding to Donald Trump on an equal footing. Thus, Washington would be happy to continue the escalation of the conflict. For "coronavirus", for "unfair treatment of America", for "theft of intellectual property", for Hong Kong and so on, but the state of its economy does not allow it to easily get involved in international conflicts. There was a certain stalemate. It is unlikely that Trump intended to end the trade standoff with Beijing by signing the "first phase" deal. However, the "second phase" is not even in question now. There are no new negotiations, the countries only continue to exchange mutual jabs in the form of sanctions against certain companies and officials, and have begun to close each other's consulates and representative offices on their territories. The only way out of this situation for us at this time is a change of power in America. If the Democrat Joe Biden comes to power, it will be possible to count on the fact that relations with China will improve. And everyone in the world will benefit from this since everyone depends on the American and Chinese economies to some extent. If Donald Trump remains in power for another 4 years, we can be sure that we will witness another 4 years of conflicts, trade wars, and other things.

Recommendations for GBP/USD:

For long positions:

In the 4-hour timeframe, the EUR/USD pair continues its upward movement. Thus, the targets for long positions are now the levels of 1.2837 and 1.2846.

For short positions:

Sell orders can be opened in small lots no earlier than the price is fixed below the critical line with the first goal being the Senkou Span line B. Bear positions remain extremely weak.

The material has been provided by InstaForex Company -