4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
CCI: -120.8191
The British pound is trading lower for the fifth day in a row and has come close to the lowest possible border of the side channel. Thus, we still expect a rebound from the level of 1.2165 with the resumption of the upward movement to the Murray level of "7/8"-1.2634. At the same time, the downward movement in recent days is very confident, so it is possible to overcome the level of 1.2165, which will allow the pair to continue moving south in the medium term. The position of the British pound again raises serious concerns, as the UK economy is experiencing much more serious problems than the US or European. Entering the CCI indicator in the area below the "-200" mark will be a strong signal for the end of the downward movement.
The macroeconomic background of yesterday was expressed only in one report on applications for unemployment benefits in the United States. We have already written about it in the article on the euro/dollar. Traders ignored this report or considered it optimistic, although it was complicated to do so. Thus, the US currency continued to appreciate, despite 36.5 million initial applications for unemployment benefits over the past 8 weeks. At the same time, experts began to pay attention to the looming constitutional crisis and the split in the UK itself (previously, we have repeatedly reported on the possible split of the European Union and the exit of Italy or Germany). For example, the UK officially started easing quarantine measures on May 13. This was stated personally by Boris Johnson. However, the governments of Northern Ireland, Scotland, and Wales did not listen to London and extended the quarantines until May 28. Also, the British Prime Minister allowed citizens to travel by car, but the borders inside the UK are closed, which means that only the British will move freely and only within England. This "disobedience" of Ireland, Scotland, and Wales is not disobedience to the will of London since these states were able to make independent decisions in the field of health 20 years ago. However, the very refusal to follow the recommendations of Boris Johnson eloquently expresses the position of defiant states. And it is expressed by the fact that everyone except England, for the most part, did not want to leave the European Union. Scotland is determined to hold a second independence referendum in the last 6 years just to leave the UK and return to the EU. Wales, Northern Ireland and Scotland do not support Boris Johnson and his "hard" Brexit initiatives in principle. And everything is going to him at the moment, since the probability of signing an agreement with the European Union is negligible, as is the extension of the "transition period". There is also no deal yet with the US, although a few months ago both Boris Johnson and Donald Trump were chanting about a "Grand trade agreement." It is clear that now is not the most favorable time for trade negotiations. But for Britain, these deals are vital, although Boris Johnson's government pretends they are not.
Also yesterday, it was reported that the Ministry of Finance of the UK believes that the economy will face a severe recession shortly. In principle, this is not news. A similar statement was made a day earlier by the head of the Federal Reserve, Jerome Powell. The market also received information about a secret document for the British government about the economic consequences of the "coronavirus" epidemic. According to this document, under the mildest scenario of a pandemic, the crisis creates a budget deficit of 340 billion pounds. In the worst-case scenario (longer-term epidemics, a second wave, a new outbreak), losses will amount to more than 500 billion, which is almost half of the UK budget. Thus, the Kingdom has found a perfect time to leave the European Union. It is clear that in 2016, no one could have imagined that such a serious pandemic would happen in 2020. However, the British government, by all accounts, as well as the American government, failed to prepare for the epidemic. The number of infections and deaths is the highest in Europe. And the economic losses of the United Kingdom will complement the set of financial losses from the "divorce" with the European Union. And after 7 months, the British economy will begin to suffer from the lack of trade agreements with the EU and will start trading with the countries of the Alliance under the rules of the WTO. If Britain continued to stay in the EU, it could count on the help of other states, on the ECB's programs to stimulate the economy, but it pompously left the EU and now can only count on itself. This means that these 340 or 500 billion pounds will have to be taken out of their own pockets by taxpayers sooner or later. Boris Johnson and his Cabinet can borrow these funds, but in any case, ordinary British people will have to pay. Thus, the Conservative Party in December last year won a historic election victory, which allowed Boris Johnson to practically single-handedly run the country in the next election, could suffer the same crushing defeat if taxes increase and British living standards fall.
No important macroeconomic statistics are scheduled in the UK for Friday, May 15. Therefore, traders will only pay attention to American statistics. However, we still believe that macroeconomic data have very little impact. Quietly and imperceptibly, the pound/dollar pair approached the minimum from April 7 and worked it out perfectly (1.2165-1.2165). Now it remains to be seen whether the bears will be able to overcome this level because if so, the pair can start forming a new downward trend. The side channel, as we have said more than once, has an extremely blurred lower border, but its minimum value, in any case, is not lower than the level of 1.2165. Therefore, this level is now the key to the prospects of the British currency. If the price rebounds from this level, the pair may again rush to the upper border of the side channel, where it has been since March 30.
The average volatility of the GBP/USD pair remains stable and currently stands at 117 points. On Friday, May 15, we expect movement within the channel, limited by the levels of 1.2078 and 1.2312. A reversal of the Heiken Ashi indicator upward will indicate a new round of upward movement.
Nearest support levels:
S1 – 1.2146
S2 – 1.2085
Nearest resistance levels:
R1 – 1.2207
R2 – 1.2268
R3 – 1.2329
Trading recommendations:
The GBP/USD pair continues its downward movement on the 4-hour timeframe. Thus, formally, sell orders with the goals of 1.2146 and 1.2085 remain relevant now, but the downward momentum may dry up around the mark of 1.2165, so we recommend that you be careful with opening sell positions until this level is overcome. It is recommended to buy the pound/dollar not before fixing the price back above the moving average with the first goals of 1.2390 and 1.2451.
