4-hour timeframe
The British pound was generally trading slightly lower last trading week, in contrast to the European currency, which continued to grow. Thus, we point to the uncorrelation of the two main pairs. This means that the factors that currently affect the movement of pairs are different, that is, they can not come from America. Since there was no particularly important news last week for the British pound and the European currency, we still tend to the option that market participants have finally remembered the deplorable state of the UK economy and that the Bank of England is seriously considering the introduction of negative rates, and it is completely unclear how the negotiations with Brussels will end. More precisely, everything is clear here. London and Brussels are unlikely to agree and from January 1 next year, the EU and the Kingdom will trade under WTO rules. Do I need to remind you that this is all bad news for the pound? As in the case of the euro currency, the British currency has been trading with a slight increase in recent months, which could be caused by the political, economic, social and epidemiological crisis in the United States. However, traders are primarily concerned about the economy of each country, and here everything is not in favor of the UK, whose "coronavirus crisis" is multiplied by the effect of Brexit. Thus, for the pound/dollar pair, we are still inclined to resume the downward movement.
Meanwhile, on Friday, July 17, the Governor of the Bank of England, Andrew Bailey, said that the country's economy has begun to recover, but many sectors of the economy remain weak, and the long-term prospects are absolutely vague. In principle, Bailey repeated the rhetoric previously voiced by Jerome Powell and Christine Lagarde. It is clear to everyone that the long-term prospects remain uncertain. "We see a recovery in economic activity and are beginning to see some economic recovery. There were signs of strong growth in activity in the housing market and car sales, but not in the entertainment and hotel industries, which employ a large number of people, many of whom receive low wages. There remains uncertainty about how cautious people will be about returning to pre-crisis life, and there is a risk of a second wave of COVID-19 or localized outbreaks," the Bank of England Governor said.
Meanwhile, UK business is sounding the alarm. It seems that it is Brexit No Deal that scares them the most, and not the "coronavirus crisis". Although, perhaps, here one thing is layered on the second. In any case, it is not the first time that business in Britain has asked the government to do everything possible to ensure that a free trade deal with the European Union is concluded. However, according to Michel Barnier and many other politicians and experts in the field of political science, London is not in a hurry and is not eager to conclude a deal with the European Union. This may be, in particular, due to the fact that Brussels wants one comprehensive agreement that will include not only the organization of trade relations. London wants to conclude agreements separately and is primarily interested in trade. Thus, Boris Johnson, who has not yet reached Brussels to meet in person with Ursula von der Leyen and other EU leaders and negotiate an agreement with them, may wind down negotiations with Brussels altogether within a few months. We can only observe what is happening and react to it.
At the same time, it became known that Boris Johnson is not going to introduce a second "lockdown" in the country, even if there is a new outbreak of "coronavirus". The British Prime Minister said that the new "hard" quarantine will look like a "nuclear deterrent", and the country may simply not be able to withstand it. In an interview with the BBC, Johnson said that the right to quickly block certain districts, regions, districts, and even individual locations (like a store) has been transferred to local authorities. It is up to local governments to monitor all outbreaks of the virus and respond quickly to them, taking action at their discretion. Professor John Edmunds, for example, believes that a return to normal life is still very, very far away. The Professor said that hugs, handshakes, public transport and in general life without restrictions will not return to the lives of Britons for a long time. "We will not be able to make it until then, until we become immune to the virus. The vaccine is still far from being discovered, and its effectiveness and safety must be proven. If we return to normal life, the virus will return very quickly," Edmunds said.
In the dry balance, we have the following. The outlook for the British pound is starting to look very bleak again. The UK currency recovered more than 1,100 points after falling in mid-March, but then there was force majeure. It cannot be said that the pound fell by 1,800 points quite reasonably and logically. Thus, if we take the average pre-crisis levels of the pound ($ 1.26 - $ 1.29), it turns out that in the long term, the pound still continues to fall in price. And absolutely logical, from our point of view. Until more serious economic problems begin in the United States, the British pound has nothing to rely on in pair with the dollar. By the way, the American economy may have serious problems if, for example, China and the United States start a full-fledged "cold" war. Or, for example, if the "coronavirus" leads to a new "lockdown" in the country, which will inevitably affect the economy. While this is not the case, it is the British economy that remains in a weaker position. And this weak position continues to deteriorate due to the actions, or rather inaction, of the British government.
Trading recommendations:
In the 4-hour timeframe, the pound/dollar pair started a weak downward movement, barely anchored below the Kijun-sen line and failed to even exit the Ichimoku cloud yet. Thus, it is now recommended to consider short positions with targets of 1.2497 and 1.2454, but small lots, since the "dead cross" is now extremely weak. It is recommended to return to buy orders no earlier than when traders have crossed the Kijun-sen line with the goals of 1.2640 and 1.2705.
The material has been provided by InstaForex Company - www.instaforex.com