4-hour timeframe
Technical details:
Higher linear regression channel: direction - upward.
Lower linear regression channel: direction - upward.
Moving average (20; smoothed) - upward.
CCI: 31.5276
The British pound, as well as the euro, continued to fall on Tuesday, August 4. In fact, this is exactly the scenario we predicted for the pair, since in the case of the euro, or in the case of the pound, the growth of these currencies was not supported by anything. The blame was the US dollar, which came under massive pressure from market participants. However, we have repeatedly noted that if the euro at least had reasons to strengthen, even 11-12 cents in three months is still too much. The pound sterling did not have them at all. We have repeatedly said that with the set of problems that the UK has accumulated over the past 4 years, the pound could only show not too strong corrective growth, but not a noticeable upward trend. Now, given the fact that with a high probability, traders have already played all the "4 American crisis" and now they simply need a rest. The pound has no other way but to continue falling.
During the second trading day of the week, no important macroeconomic reports were published in the UK and the United States. Therefore, in fact, traders were deprived of any news feed. There was no important, high-profile news on this day. Thus, no one prevented traders from continuing to get rid of the British currency, or rather to reduce previously opened long positions.
Meanwhile, the next "black" news came from Britain. According to a study by the Berlin Center for Social Research, after the 2016 referendum, the number of Britons who moved to the European Union increased by 30%. The number of Britons who received EU citizenship increased by 500%, and Germany - by 2000%. Scientists also note a potential "brain drain" from the UK to the EU and the US.
At the same time, Washington officially refused to extend visas to Chinese journalists located in the United States. Thus, in the coming months, all Chinese journalists can leave the United States. Naturally, Beijing immediately issued a response in which it warned that if Chinese journalists were forced to leave the United States, then all American journalists, including those in Hong Kong, would be deported from China.
Relations between China and the UK are also deteriorating. We have already written that the most affected party in the "Hong Kong issue" can be considered the United Kingdom, with which an agreement was signed in 1984 that Hong Kong should remain an independent autonomy, at least until 2047. This agreement, according to most countries of the world, was violated by Beijing, which adopted the law "on national security in Hong Kong", effectively depriving that autonomous status, since now the Chinese government can control this district through special, newly created authorities. London, in turn, decided to refuse to supply ammunition and weapons to Hong Kong. This was stated by British Foreign Minister Dominic Raab. In addition, London is going to simplify the possibility of obtaining British visas for residents of Hong Kong from 2021. China, in turn, promised to cancel all British passports for Hong Kong residents. Thus, the conflict continues to grow not only between the United States and China, but also between Britain and China.
On the third trading day of the week in the UK, as in many EU countries and the EU as a whole, the publication of business activity indices in services is scheduled. This area is now more important from the point of view of restoring any economy, since it is this area that has suffered most from the "coronavirus crisis". It continues to suffer even now, when most of the restrictive measures have been lifted in Europe. People are still afraid of the "coronavirus", which means they do not lead an active social life, which negatively affects the service sector, which directly depends on the social activity of the population. According to experts' forecasts, business activity in all EU countries will continue to grow, which will mean the recovery of the service sector. But in the United States, there will be a fairly important ADP report on changes in the number of people employed in the private sector for July. According to forecasts, the number of employees may grow by 1.5 million, although this figure is now closely linked to the unemployment rate and applications for unemployment benefits, the number of which has started to grow again in recent weeks. The Markit and ISM US business activity indices may be worse than the forecast values, as the "coronavirus" continues to rage in the United States, unlike in European countries.
However, we believe that the technical factor is now in the first place. We believe that in the near future the moving average line will be overcome, which will provoke the formation of a new downward trend. All the negative from overseas traders played back, now it's time to "remember" that everything is not good in the UK.
And we certainly should not forget about the scheduled summing up of the Bank of England's meeting on Thursday. On the one hand, traders do not expect anything supernatural from the British regulator. On the other hand, there are always possible surprises, especially against the background of talk in recent months that, allegedly, the Bank of England may lower rates into negative territory. Andrew Bailey himself said that this option is being considered and carefully analyzed by the bank's economists. Thus, on Thursday, the mood of traders may either change or strengthen, which is unlikely, since it is unlikely that the Bank of England will change its policy in the "dovish" direction. Thus, everything so far suggests that the British currency will continue to fall in price.
The average volatility of the GBP/USD pair continues to remain stable and is currently 113 points per day. For the pound/dollar pair, this value is "high". On Wednesday, August 5, thus, we expect movement within the channel, limited by the levels of 1.2955 and 1.3181. Turning the Heiken Ashi indicator upward will indicate a possible resumption of the upward movement of the pair.
Nearest support levels:
S1 – 1.3000
S2 – 1.2939
S3 – 1.2878
Nearest resistance levels:
R1 – 1.3062
R2 – 1.3123
R3 – 1.3184
Trading recommendations:
The GBP/USD pair continues its downward correction on the 4-hour timeframe. Thus, today it is recommended to wait for the completion of the correction and resume trading for an increase with the goals of 1.3123 and 1.3184. Short positions can be considered no earlier than fixing the price below the moving average with the first goals of 1.2939 and 1.2878.
