4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 154.4889
While the euro currency makes timid attempts to resume the upward movement, the pound sterling simply and seamlessly continues to rise in price. Having pushed off from the moving average line, the pair's quotes again rushed up and once again quite calmly updated the 2.5-year highs. Thus, at the moment, these highs are already located around $ 1.39 and it does not look like the bulls are going to stop there. We just once again have to ask the question what is going on and when will it end? On the one hand, the answer is prosaic. The pound sterling is becoming more expensive for the same reasons as the European currency. All the same "global fundamental factors" significantly increase the supply of the US currency in the market and reduce the attractiveness of the US economy. Plus, the latest UK GDP report probably made traders very happy. Anyway, if earlier the upward trend was maintained in the "high-volatility swing" mode, then in the "just swing" mode, now it is just a strong upward movement with small corrections. The fact that the pound is extremely overbought doesn't bother anyone. The fact that the British economy (although it showed a positive result in the fourth quarter) is recovering at a much slower pace than the American one, does not worry anyone. The fact that all the research continues to show that the British economy is going to lose money in the future is also not particularly worrying for anyone. It is on thinking about what awaits the British economy in the future that we will focus on in more detail.
At a time when Brexit was not yet complete, and London and Brussels were engaged in intensive negotiations on a trade agreement, this was a favorite topic of all experts and analysts. Think about what awaits the UK after Brexit. Now, in the conditions of independence from the European Union, the Kingdom has been living for a month and a half. Of course, this is still quite a short time to draw any conclusions. However, even the primary information for 2021 shows that life in the UK has become worse than under the European Union. We certainly understand that in 5-10 years, life in Britain can be much better than it was in the European Union. At least, the British themselves will think so, and this is the most important thing. But at the moment, the facts are as follows. Exports from the UK to the European Union decreased by 68% in January. This is just the data of the Association of Road Carriers, and not general export data for all industries and modes of transportation. However, there are official data on the trade balance. These data show that in the last 4 months of 2020, the trade deficit only grew and almost reached five-year lows. Data for 2021 is not yet available, but there is reason to assume that the trade deficit will only increase, as it is difficult to believe that Britain began to sell more goods and services abroad after Brexit. Some might say that it probably started importing fewer goods. Possible. But in any case, exports to the EU exceeded the volume of imports from the EU. Thus, from our point of view, the trade deficit will grow in 2021. Further. The European Commission has released official economic forecasts for the next two years and they do not only contain data on expected levels of GDP or inflation. They also have calculations about who will receive how much less because of Brexit. For example, according to the calculations of the European Commission, the losses of the European Union from the break with the UK will amount to about 0.5% of GDP. While the UK will lose about 2.25% of its GDP. However, it was known from the very beginning that Britain's losses would be higher than those of the EU. In absolute terms, the Kingdom may lose about 40 billion pounds in 2021 and 2022.
At the same time, problems are brewing on the border between Northern Ireland and Ireland. As we have repeatedly said, the problem was initially that the UK wanted to leave the EU, however, it also meant that a border should appear between Northern Ireland and Ireland, which are located on the same island of Ireland. This meant that customs offices, inspections, and so on had to be organized. However, this is exactly what the British side did not want and could not allow, since only in 1998 it was possible to suppress more than thirty years of conflict between Irish separatists and London, which concerned relations between the two powers on the island of Ireland. However, now that it seems that all the conditions were agreed, and the border from the island of Ireland was moved to the Irish Sea (it sounds a little ridiculous), it turned out that London does not fulfill all the conditions that were previously spelled out in the Northern Ireland Protocol. This was stated by the President of the European Commission Maros Sefcovic. According to Sefcovic, agreements on the movement of goods and people at the border are not respected and this is only the beginning of the problems. This Thursday, he is scheduled to meet with Michael Gove, a member of the British government. It is also reported that London would like to soften the provisions of this protocol, however, it is unlikely that Brussels will go for it. So potentially in the future, we have differences between the EU and Britain.
In general, from our point of view, the UK's prospects are excellent, but these are very long-term prospects. And in the near future, the economy will continue to stall. However, this stalling still does not affect the British pound in any way. On the contrary, it feels very good, much better than the euro exchange rate, although there are fewer problems in the European Union now. Thus, it is still possible to explain why the pound is growing. But it is becoming more and more difficult to explain why the growth has increased in recent weeks and why there are no corrections.
The average volatility of the GBP/USD pair is currently 69 points per day. For the pound/dollar pair, this value is "average". On Tuesday, February 16, thus, we expect movement within the channel, limited by the levels of 1.3837 and 1.3976. A reversal of the Heiken Ashi indicator downwards signals a round of downward correction.
Nearest support levels:
S1 – 1.3855
S2 – 1.3794
S3 – 1.3733
Nearest resistance levels:
R1 – 1.3916
R2 – 1.3977
R3 – 1.4038
Trading recommendations:
The GBP/USD pair continues its strong upward movement on the 4-hour timeframe. Thus, today it is recommended to keep long positions open with a target of 1.3976 until the Heiken Ashi indicator turns down. It is recommended to consider sell orders with a target of 1.3733 if the price is fixed below the moving average line.
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