4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - down.
CCI: -68.1088
After a minimal correction, the British pound, as well as the euro, shows signs of resuming a strong downward trend, which is confirmed fundamentally, based on the overall picture of the situation in the UK and the US. And it is not justified, based on the picture of the situation in the world covered by the epidemic. Let's explain: if you remove the epidemic and all its consequences for the economies of the United States and the Foggy Albion from the equation, then the pound is getting cheaper absolutely logically, and we have been talking about this constantly for the past few months. All the reasons have been listed repeatedly. However, if you try to analyze the fall of the pound by 1,500 points over the past 10 days, it becomes obvious that there were no particularly good reasons for this. The epidemic is raging both in the United States and in Britain. The number of cases is much higher in the United States. Both central banks simultaneously lowered rates to almost zero, but the Fed immediately lowered the rate by 1.5%, while the Bank of England - 0.65%. Both central banks announced the expansion of quantitative stimulus programs by absolutely gigantic amounts, as well as the introduction of various financial programs that stimulate the economy. Stock indices in the United States have collapsed, but it is unlikely that shares of British companies have risen in price over the same time. Thus, the only reason for the growth of the dollar is the confidence of most market participants that the US currency is the most secure currency at this time. And that's all. We also have to figure out what to expect from the currency pair this week.
As we have already mentioned in the article on EUR/USD, there will be quite a lot of important events in both the UK and the US this week. The only question is, will traders pay any attention to these events? On Tuesday, the UK will publish indices of business activity in the services and manufacturing sectors for March (preliminary value). They will be discussed in a separate article.
So we go straight to Wednesday and immediately see the red-highlighted UK inflation report for February in the calendar of events. The basic consumer price index, which does not take into account changes in food and energy prices. This indicator is expected to fall to 1.3%-1.5% y/y.
The main indicator of inflation is likely to slow down from the current 1.8% to 1.5%-1.6% in annual terms. And these figures refer to February. I don't want to think about what will happen in March. Anyway, in Britain, inflation is slowing again, which is not good for the British economy, which has been experiencing serious problems in recent years.
On Thursday, March 19, in addition to important American statistics, the indicator of retail sales in the Foggy Albion for February will be published. In annual terms, experts predict an increase of 0.8%-0.9%, which is almost the same as the previous month. In monthly terms, 0.3%-0.4% is expected. However, a more important event is planned for the afternoon. There will be another meeting of the Bank of England, which has recently cut the key rate twice and brought it to the minimum value of 0.1%. All nine members of the BA monetary committee are expected to vote for the key rate to remain unchanged. The quantitative easing program will also remain at the same level of 645 billion pounds. However, given the current state of things, it is possible that there will be some surprises. And of course, the minutes of the Bank of England meeting will be published, which may contain a lot of important information regarding the views of the monetary committee on the current state of monetary policy and plans for further actions of the regulator.
On the last trading day of the week, important macroeconomic information is not expected from Britain. As with the EUR/USD pair, we believe that the most important information is the one that will concern the reports for March. Even if these are not final values. And of course, the meeting of the British regulator. All other reports are likely to be ignored by traders.
Well, as for the "coronavirus" epidemic, in the UK, despite all the criticism of Boris Johnson and the belated adoption of measures for strict quarantine, things are not as bad as they could be. As of March 22, 5,000 people were infected and the growth rate is quite low. The British government has decided to compensate all workers who lost the opportunity to earn due to the epidemic, up to 80% of their wages. This was stated by Rishi Sunak, Minister of Finance. These measures, according to the British government, will help companies not to lay off employees, even if they can't work because of the pandemic. Mr. Sunak also appealed to businessmen and urged them not to dismiss employees because of the current situation. "I understand that the situation is very difficult. We in the government are doing everything to support you, and I ask you to do everything to support your employees," Sunak said. In addition, British companies will be able to avoid paying value-added tax during the entire period of the quarantine measures and take an interest-free loan for a period of one year.
From a technical point of view, the Heiken indicator has turned down, so the downward movement is also highly likely to resume. However, as with the euro, everything will depend on the state of market participants. If the panic persists, then the strong fall in the pound may continue. At the same time, the British currency cannot constantly fall in price, despite the epidemic. Therefore, at any moment, there may be an upward turn with no less strong growth than in the last two weeks. You need to be ready for any scenario.
The average volatility of the pound/dollar pair over the past 5 days is already 404 points and continues to increase. Over the past three trading days, the pound has passed 1,500 points for three days. On Monday, March 23, we expect the pair to move within the volatility channel of 1.1241-1.2049. This pair is likely to return to the lower border, but there are also small hopes for a correction.
Nearest support levels:
S1 - 1.1475
S2 - 1.1230
Nearest resistance levels:
R1 - 1.1719
R2 - 1.1963
R3 - 1.2207
Trading recommendations:
The GBP/USD pair started a long-awaited correction, which could have already ended. Thus, sales of the pound with the targets of 1.1475 and 1.1230 are still relevant, but it is recommended to open new sell positions after the Heiken Ashi indicator turns down (a second blue bar is required). It is recommended to buy the British currency with the target of 1.2451, but not before fixing the price above the moving average line, which is not expected in the near future (the price is too far from the moving average). We remind you that in the current conditions, opening any positions is associated with increased risks.
Explanation of the illustrations:
The highest linear regression channel is the blue unidirectional lines.
The lowest linear regression channel is the purple unidirectional lines.
CCI - blue line in the indicator window.
Moving average (20; smoothed) - blue line on the price chart.
Murray levels - multi-colored horizontal stripes.
Heiken Ashi is an indicator that colors bars in blue or purple.
Possible variants of the price movement:
Red and green arrows.
The material has been provided by InstaForex Company - www.instaforex.com