Overview of the GBP/USD pair. January 26. Andrew Bailey warns of a "difficult period" for the British economy.

4-hour timeframe

analytics600f5cead16fc.jpg

Technical details:

Higher linear regression channel: direction - upward.

Lower linear regression channel: direction - upward.

Moving average (20; smoothed) - sideways.

CCI: 6.2360

The British pound remains the main paradox of the last non-calendar year. In the article on the euro/dollar, we assumed that the global decline in the US currency may be caused by the infusion of "tons of money" into the US economy throughout almost all of 2020. The euro currency at the beginning of 2021 still began to adjust, however, the pound sterling continues to be near its 2.5-year highs and does not show any desire to decline. We can assume that the US dollar fell in the price for most of 2020, paired with the euro, because of the $ 4 trillion that was poured into the economy. In the Eurozone, there were no such infusions, everything was limited to the expansion of the QE program and the introduction of the PEPP program, which has the same meaning – the purchase from the open securities market. But there are so many problems in the UK right now. And in the UK, there is Brexit, which everyone very quickly forgot about. If the assumption made in the article on the euro/dollar is true, then we can explain the growth of the British pound in 2020. In general, the hypothesis is certainly interesting. Since the beginning of the pandemic, a lot has changed in the world and the foreign exchange market. A year ago, it was hard to imagine that the pound would rise in value at such a pace while the UK economy would shrink from quarter to quarter. A year ago, it was hard to imagine that currencies would not react in any way to macroeconomic reports. However, the reality is now different. And you should live and trade according to them. And we still recommend that you pay the most attention to the "technique". Even if the whole thing is a huge infusion of dollars into the economy, taken from nowhere, it is by no means impossible to track the frequency with which they are poured, in what periods. This is managed by the US Treasury Department and the Federal Reserve. They do not report that this week 100 billion was poured in one way or another. And technical factors reflect the already existing market reaction to the proposed actions of the Fed and the Ministry of Finance.

Nevertheless, it is still not worth completely abandoning all the factors that can influence the movement of the pound/dollar pair, even in such a difficult time as now. And the facts and fundamental factors suggest that the British economy is already experiencing very serious problems and will continue to experience them for at least a few more months. Andrew Bailey, the governor of the Bank of England, said last week: "We are going through a very difficult period at the moment, and there is no doubt that this may delay the trajectory of the recovery". Bailey also said that to support the economy, the Bank of England is considering the introduction and effectiveness of negative rates, although "there may be many problems with them." However, if the Bank of England had many other ways to stimulate the economy, then negative rates would not be out of the question. Thus, if the first person of the country's central bank speaks openly about the problems, then things are really bad. And it does not matter whether the pound sterling becomes more expensive or cheaper. Of course, logically, it should be cheaper. This is exactly what we have been waiting for from this currency for several months, if not more. However, if our hypothesis about the oversaturation of the markets with dollars is correct, then the process of depreciation of the US currency can continue for a very long time. However, there will be times when the UK's problems will be particularly acute. And at such a moment, the pair will simply start a correction.

Separately, it should be mentioned that in the UK, business activity in the service sector decreased very much in January. This became known last Friday. Naturally, two "lockdowns" could not pass without consequences this winter in the UK. But it should be remembered that for the Foggy Albion, it is the service sector that is of priority importance. A reduction in business activity will inevitably lead to a reduction in GDP. An additional reduction. Thus, the problems of the British economy remain a huge number. And the pound continues to rise in price.

In the current situation, we continue to recommend that traders continue to pay increased attention to technical factors. As we have repeatedly said, fundamental factors and macroeconomic reports have almost no effect on the movement of the pair now. If our hypothesis about the impact of the huge injections of the US dollar in the economy is true, then the only way to track their change and impact on the foreign exchange market is a technical picture. At the moment, the pair continues to remain near the level of 1.3700 and near the moving average line. Unfortunately, recently there have been a huge number of overcomes of the moving average, after which the downward trend did not begin. Therefore, we recommend treating any short positions with extreme caution. Purchases, despite four unsuccessful attempts to overcome the level of 1.3700 and one of the levels of 1.3750, if they do not look attractive (after all, the price has already climbed very high), nevertheless remain relevant, since it is not clear what factors can make the dollar start to rise in price in the near future.

analytics600f5cf605885.jpg

The average volatility of the GBP/USD pair is currently 86 points per day. For the pound/dollar pair, this value is "average". On Tuesday, January 26, thus, we expect movement within the channel, limited by the levels of 1.3586 and 1.3758. A reversal of the Heiken Ashi indicator to the top will signal a new round of upward movement.

Nearest support levels:

S1 – 1.3672

S2 – 1.3611

S3 – 1.3550

Nearest resistance levels:

R1 – 1.3733

R2 – 1.3754

Trading Recommendations:

The GBP/USD pair has started a new round of correction on the 4-hour timeframe. Thus, today it is again recommended to trade for an increase with the targets of 1.3733 and 1.3758 in the event of a price rebound from the moving average line. It is recommended to consider sell orders with targets of 1.3611 and 1.3586 if the price is fixed below the moving average.

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