4-hour timeframe
Amplitude of the last 5 days (high-low): 103p - 165p - 233p - 172p - 358p.
Average volatility over the past 5 days: 207p (high).
What can we say about the past week for the GBP/USD pair? In short, the markets have been in absolute panic all week. Once again, we can note the collapse of oil, quotes of US stock indexes, as well as many currencies. We still believe that it is impossible to predict the movement of any currency pair based on fundamental events or macroeconomic statistics. Technical analysis predicts the future more or less accurately now. From the last local high (March 9 – Monday), the pound/dollar pair lost 930 points. For a week – 930 points! Almost 10 cents... What can explain such a collapse in quotes, if not panic? No fundamental events could provoke such a fall, especially given the fact that the pound was steadily rising in price just a week ago. Of course, you can link what is happening on the pair with the decisions of the Federal Reserve and the Bank of England on monetary policy. First, the Fed lowered the rate by 0.5%, and then the British regulator made a similar decision. The fall of each currency did not start with the central bank meeting. But from a technical point of view, everything is logical. On the 24-hour timeframe, traders tried to start a new upward trend (absolutely unfounded fundamentally), but failed to overcome the Senkou span B line, after which the downward movement began. If you do not pay attention to what is happening now in the world (in the last two weeks), we have long warned that sooner or later the pound will fall. No, the pound has not had and will not have any reason to grow in the near future. The only thing that can really provide long-term support for the British currency is if the Fed reduces the key rate so much that it will be lower than in the UK. This is the only chance for the pound to change the unfavorable balance of forces with the US currency. However, at the moment, the rate in the United States is 1.25%, and in Britain – 0.25%. Thus, Donald Trump will need to make a lot of effort to convince Jerome Powell to go for more and more easing of monetary policy. And even taking into account the most important factor – the difference in the strength of monetary policies between countries, note how much the pound rose when the Fed lowered the rate, and how much the dollar rose when the BoE lowered the rate. Thus, we do not expect that something will change dramatically in this factor in the near future.
The overall picture remains as unsightly in the UK as it was. Just now all the problems in Britain, of which there were extremely many, are multiplied by the coronavirus, which only makes things worse. We would like to remind you that the epidemic will end sooner or later, hopefully without major losses. The question is with what losses each country will come out of it and how much the economy of each individual country will slow down. Recall that before the panic of the last two weeks, the British macroeconomic statistics from time to time disappointed traders, while the US data were strong and stable. Thus, even if we assume that both these economies will suffer the same losses, then again the balance of power will not change between the British pound and the US dollar.
Thus, it is best to wait for the end of the epidemic, or at least its localization, or at least a slowdown of its spread. Without this, it is naive to expect that the markets will calm down and return to normal. Any macroeconomic statistics do not matter now. The economy of each individual country may begin to shrink. The coronavirus is likely to continue to spread. Panic is already present not only in world markets, but also among the civilian population, especially in European countries, where everything is being swept off the shelves in grocery stores. People buy food and do not go out on the street once again. On the one hand, this is good, there is a chance that the growth rate of the epidemic will decrease. At the same time, if people stay at home, it means that production and services are not being provided. The economy is not working, and GDP is declining. Thus, we believe that we are only at the very beginning of a crisis that is only gaining momentum.
From a technical point of view, the main question now is when the correction will begin. The MACD indicator can start to run low at any time, since it cannot fall constantly. Neither currency can fall constantly, but in the current conditions, the movement in one line can continue for a very long time. You need to be prepared for any scenario.
Recommendations for short positions:
On the 4-hour timeframe, the pound/dollar pair continues its strongest downward movement and overcame all the target levels for this week. Those traders who remain in sell positions can hold them for the purpose of the support level on the 24-hour timeframe of 1.2152. A reversal of the MACD indicator up with a parallel price increase may indicate the beginning of a correction. Opening new shorts, from our point of view, is dangerous now.
Recommendations for long positions:
It is recommended to buy the GBP/USD pair only if the quotes return to the area above the critical line with the goal of the first resistance level of 1.3150. However, this development is not expected in the near future. When opening any positions, it is recommended to act as carefully as possible and keep in mind the heightened risks.
Explanation of the illustration:
Ichimoku indicator:
Tenkan-sen is the red line.
Kijun-sen is the blue line.
Senkou Span A - light brown dotted line.
Senkou Span B - light purple dashed line.
Chikou Span - green line.
Bollinger Bands Indicator:
3 yellow lines.
MACD indicator:
Red line and bar graph with white bars in the indicators window.
Support / Resistance Classic Levels:
Red and gray dashed lines with price symbols.
Pivot Level:
Yellow solid line.
Volatility Support / Resistance Levels:
Gray dotted lines without price designations.
Possible price movements:
Red and green arrows.
The material has been provided by InstaForex Company - www.instaforex.com