Overview of the GBP/USD pair. December 29. Boris Johnson's optimism is unfounded. The British economy is still struggling

4-hour timeframe

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Technical details:

Higher linear regression channel: direction - upward.

Lower linear regression channel: direction - upward.

Moving average (20; smoothed) - sideways.

CCI: 4.5667

The British currency paired with the US dollar on the first trading day of the week began a new round of downward movement within the "highly volatile swing", in which it has been for more than a month. This time, the quotes reached the Murray level of "7/8"-1.3611 again last Thursday, bounced off it, and began a new round of downward movement. If you look closely, in recent weeks, any round of movement is at least 300 points, and they alternate. Thus, formally, the upward trend is now maintained. Simply because the price is still near its 2.5-year highs. However, this trend is very difficult to work out – the corrections are too deep. Thus, traders should clearly understand that now is not the most favorable time for trading on the pound/dollar pair, although the probability of a downward trend beginning at this time is very high. However, to do this, you need to wait at least for the price to consolidate below the moving average line. Secure anchoring. Then it will be possible to count on the fall of the pound quotes by another 150-200 points. And then it will be seen whether this is a new trend or not.

Meanwhile, the ambassadors of all 27 EU member states approved the "temporary application" of the agreement on trade relations with the UK. We talked about this option even earlier, since it was the only one to have time to "ratify" the agreement and continue to trade with each other on free terms. Already today, all EU ambassadors must sign the relevant document, and the EU Parliament will meet in the new year to ratify the agreement.

Meanwhile, while the UK and the EU are euphoric about the success of the negotiations, many experts and analysts are skeptical about the concluded trade deal. First, as we said a few months ago, the deal is not a panacea for Britain. The contraction of the British economy due to Brexit will still happen. The deal will only smooth out the negative effect of the "divorce" with the EU, but will not remove it completely. Second, the Bank of England expects GDP to fall by 1% in the first quarter. Third, we expect UK GDP to fall by several percent in the fourth quarter due to a repeated lockdown in November and the country's isolation due to a new strain of coronavirus in December. Fourthly, many experts believe that a deal with the EU will have a positive effect in the short term, but in the long term, it will not be too beneficial for London. Naturally, Boris Johnson has already boasted several times to the whole world that London has managed to conclude a profitable trade agreement that will not infringe on the sovereignty and independence of Britain. However, only practice will show what a trade agreement is. And we will witness this in a few days. After all, do not forget that even if the free trade regime is maintained, the borders between Britain and the EU will appear. This means that there will be customs checks, changes in the processing of documents, there will be delays at the borders and ports. Further, the UK is a country whose prosperity depends more on the services sector, especially financial services, than on manufacturing and fishing. However, there are practically no points in the agreement concerning this sphere. That is, from the first of January, many British companies that provide certain services will be cut off from the European market. Naturally, this does not mean that now British companies from the service sector will not be able to do business with European partners and customers. This only means that their activities "for export" will be complicated. Further, a lot will depend on how the UK will now establish its trade relations with other countries. Simply put, Boris Johnson got the freedom he dreamed of, and then? Will he be able to use it for the good of the country? A deal has been struck with the EU, but the EU is not the only country in the world that the British want to trade with. In general, so far the British economy is likely to continue to suffer in the short term, but in the long term - everything will depend on the UK government.

As for the British pound, we still believe that it should start a new downward trend. It is unclear what will happen during New Year's week, but all factors still speak in favor of the fact that a new strong downward movement should begin. We still remind you that to trade down, you need to wait for the formation of sell signals from the "Linear Regression Channels" trading system or technical indicators that you use in trading.

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The average volatility of the GBP/USD pair is currently 195 points per day. For the pound/dollar pair, this value is "high". On Tuesday, December 29, thus, we expect movement inside the channel, limited by the levels of 1.3255 and 1.3645. The reversal of the Heiken Ashi indicator upward signals a new round of upward movement within the "swing".

Nearest support levels:

S1 – 1.3428

S2 – 1.3367

S3 – 1.3306

Nearest resistance levels:

R1 – 1.3489

R2 – 1.3550

R3 – 1.3611

Trading recommendations:

The GBP/USD pair on the 4-hour timeframe is now in a new round of downward movement. Thus, today it is recommended to open short positions with targets of 1.3367 and 1.3306 if the pair breaks the moving average. It is recommended to trade the pair again for an increase with the target of 1.3611 if the price is fixed and bounces off the moving average. In general, the "swing" continues now. Not a good time to trade.

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