The past trading day was another step in terms of strengthening the pound sterling, where the quote managed to update the local maximum 1.2903 ---> 1.2951, which led to touching the boundaries of the psychological level 1.3000 [ 1.2950//1.3000/1.3050].
The development of prices according to the scenario of changing market ranges 1.2150//1.2350//1.2620 ---> 1.2770//1.3000//1.3300 looks more and more realistic every day. Let's assume that the fact of changing ranges is confirmed by the price consolidation above 1.3050. But what do we get in the current situation? Colossal overbought. Do not forget that the pound sterling rate has strengthened by almost 600 points since the beginning of July, and there has not been a proper corrective move. With each new achievement of the pound, the structure of the upward move becomes unstable, which leads to special attention from the side of the speculator, who is now working on an upward wave, and may change positions tomorrow.
Thus, even if we are considering changes in the ranges, we should not exclude the scenario of a stop within the psychological region 1.2950//1.3000/1.3050, which would play in favor of the regrouping of trading forces.
Detailing the past day by the minute, we can see that the main surge in long positions occurred at the start of the American session, during which the quote managed to touch the area of the psychological level.
In terms of volatility, a high indicator of the dynamics of 114 points is recorded, which is 3% higher than the average daily activity. Based on the volatility data, the high ratio of speculative positions becomes clear.
As discussed in the previous review, traders considered a further upward move in the event of a price consolidation above 1.2900, which eventually happened in the market.
Looking at the trading chart in general terms (daily period), we can see a rapid recovery process relative to the March collapse, where the quote has almost returned to the previous stabilization range.
The news background of the past day included the S&P/CS Composite-20 in the United States, which reflected a slowdown to 3.7% instead of the expected growth from 4.0% to 4.1% , and the previous indicator was revised downward to 4.0% ---> 3.9%.
The market reaction to the US statistics was towards the weakening of the dollar.
In terms of the information background, there are statements by Prime Minister Boris Johnson about the second wave of coronavirus in Europe.
"Let's be absolutely honest about what is happening in Europe, among some of our European friends. I am afraid that in some places we are starting to see signs of a second wave of the pandemic," Johnson said on Sky News.
In fact, this is an official comment on his own actions regarding the mandatory two-week quarantine imposed on the night of July 26 for persons arriving from Spain.
The worsening of the situation with the COVID-19 virus may provoke a new unstable emotional background in the market.
Regarding the Brexit divorce process, there is a positive statement from the chief EU negotiator Michel Barnier. During a closed meeting with the ambassadors of the EU member states, Barnier expressed confidence that a new agreement with Britain is possible.
"I am confident that a balanced and sustainable agreement remains possible, even if it is less ambitious. London seems to be more interested in a low-quality, modest deal with the EU," said Michel Barnier
This kind of comment about the modest agreement plays more on the deterioration of investors in the future than on the optimistic signal of normalization.
Today, we have data on the UK lending market in the morning, which signals a recovery after the spring recession. The volume of mortgage lending could grow by 1.6 billion pounds, and the approved applications for mortgages reflect an increase of 33.4 thousand. In turn, consumer lending is showing a rapid recovery, growing by 1.1 billion pounds in June.
Based on the data for Britain, we can assume a local strengthening of the pound, but within the framework of fluctuations.
The results of the two-day meeting of the Federal Committee on Open Market Operations is considered to be the main event of the day, where no change in the key rate is expected, but the regulator is likely to provide comments on the recovery/slowdown of the economy, as well as stimulus measures that may have an impact on the dynamics of the exchange rate.
8:30 Universal time - UK lending market
18:00 Universal time - Results of the Fed meeting
18:30 Universal time - Press conference of the Federal Open Markets Committee of the FRS
Further development
Analyzing the current trading chart, you can see the price convergence with the previous day's maximum of 1.2950, which is also the border of the psychological level 1.3000 [1.2950//1.3000//1.3050]. In case of confirmation of positive dynamics in the lending market in Britain, it does not exclude the local circulation of quotes within the reference level 1.2950//1.3000//1.3050, where in case of a reduction in the volume of long positions, a price rebound may occur in the opposite direction.
Regarding the emotional mood of the market, here, as before, there is high speculative activity.
It can be assumed that if the pattern is triggered relative to the psychological level of 1.3000, market participants may take a temporary corrective position towards the values of 1.2770-1.2700.
At the same time, it should not be ruled out that speculative excitement may get out of control, where if the price consolidates above 1.3050, the upward move will continue in the market.
Based on the above information, we will display trading recommendations:
- Consider sell deals below 1.2900, towards 1.2885 - 1.2770 - 1.2700
- Consider buy deals above 1.2955, with the prospect of a move to 1.3000-1.3050. Major trades will occur after price consolidates above the level of 1.3050 over a four hour period.
Indicator analysis
Analyzing different sectors of time frames (TF), we see that the indicators of technical instruments on the minute, hourly and daily timeframes signal a buy, due to price fluctuations within the psychological level.
Weekly volatility / Volatility measurement: Month; Quarter; Year
Measurement of volatility reflects the average daily fluctuation, calculated per Month / Quarter / Year.
(July 29 was built taking into account the time of publication of the article)
The volatility of the current time is 38 points, which is 65% below the daily average. The speculative excitement will still be able to show its effectiveness in the market, and the information and news background will support this.
Key levels
Resistance zones: 1.3000; 1.3170 **; 1.3300 **; 1.3600; 1.3850; 1.4000 ***; 1.4350 **.
Support zones: 1.2885 *; 1.2770 **; 1.2620; 1.2500; 1.2350 **; 1.2250; 1.2150 **; 1.2000 *** (1.1957); 1.1850; 1.1660; 1.1450 (1.1411); 1.1300; 1.1000; 1.0800; 1.0500; 1.0000.
* Periodic level
** Range level
*** Psychological level
