The ever-increasing information buzz about the coronavirus continues to have a growing impact on financial markets. A new wave of publications about the spread of the virus, which rushed to the public immediately after the weekend, led to a new panic on the exchanges, and investors quickly closed their positions primarily in China and the rest of Asia. However, money cannot evaporate just like that, and if the shares were sold, then the proceeds must be taken somewhere. Thus, it is advisable to go where, according to investors, is calmer and safer. Traditionally, the United States considered such a place, and this is confirmed even by the fact that during crises, it is the dollar that rises in price. Yesterday was no exception, which essentially began with the strengthening of the dollar, due to sharply increased demand. Roughly speaking, we are witnessing a traffic of capital from all over the world, to the United States.
However, the pound stands apart. The decline of which was probably the most impressive. The fact is that an additional negative factor was Brexit, which is still far from complete. Now, London and Brussels should have time to agree on the economic part of the divorce agreement before the end of this year. That is, to have time to do what they could not in the previous three and a half years. Moreover, recent statements by Boris Johnson clearly show why this particular question has not budged, and continues to be an obstacle. The British Prime Minister said that it was the United Kingdom that should set the conditions and parameters for further trade relations, as the British quality standards are significantly better than European ones. To simply put it, this means that British standards will be taken into account, which must be certified by certain British services. This indicates that the UK can easily limit imports from Europe without experiencing any restrictions on the continent. Naturally, such a statement could not be ignored, and the main negotiator from Brussels, Michel Barnier, said that Boris Johnson could leave his fantasies to himself, because this will never happen. In fact, the European Union made it clear that either the commercial part of the divorce agreement is drawn up on the basis of European standards for the quality of goods and services, or it will not exist at all. Thus, as expected, the parties are trying to beat out the most favorable conditions for themselves, but in Brussels, there are much more opportunities by virtue of the much larger scale of the overall economy and the domestic market, and the European Union is imposing conditions on Great Britain which does not suit London. As a result, the situation remains unchanged, but London is just the one losing in this situation. This is precisely what caused the pound's weakening so impressive.
It is clear that against this background no one even paid attention to the data on the index of business activity in the UK manufacturing sector, which increased from 47.5 to 50.5. This turned out to be noticeably better than the forecast of 49.8.
Manufacturing PMI (UK):
At the same time, in the United States, the same index of business activity in the manufacturing sector declined from 52.4 to 51.9. Which, incidentally, turned out to be slightly better than forecasts predicting a decline to 51.7. However, in the UK, growth is the same, while it is declining in the United States. So the dollar was supposed to decline, but the coronavirus, as well as trade disputes between London and Brussels, changed the logic of events.
Manufacturing PMI (United States):
Of course, both the coronavirus and Brexit will not go anywhere today. However, it is difficult to say exactly how the issue of coronavirus will be covered in the media. Moreover, this process occurs in waves, and there is a certain break after a surge. Following this, the next wave comes, which is much more powerful. The previous days show that this happens every day. In this regard, we can assume that today will become a little calmer. The same thing with Brexit, as Boris Johnson needs to think over the words of Michel Barnier, and think over the answer to them. And it is this apparent break that may be the reason for the strengthening of the pound. A rebound on it already begs, and there is not enough just an occasion. The role of the rescuer can be performed by the index of business activity in the construction sector, which should increase from 44.4 to 45.1. Given that the real estate market, and construction is directly related to it, is one of the main criteria for determining the investment attractiveness of the United Kingdom, the growth index is a positive factor for the pound. However, a lot will depend on the media. More precisely, from what information they will distribute but what is even more important is how they will present it.
Construction sector business activity index (UK):
In terms of technical analysis, we see a strong inertial move, which returned the quote to the psychological level of 1.3000 once again, where stagnation formed with regards to the pattern, followed by a rollback. In fact, we fix the strongest acceleration in recent times, where the external background plays a key role, which is reflected on the trading chart in the form of pulsed - inertial candles.
Considering the trading chart in general terms, we see that the concentration at the level of 1.3000 has dragged on for quite some time, having the seventh development. Let me remind you that we have a medium-term upward trend at this time and at the peak of which, a wide horizontal course is developing.
It is likely to assume that against the backdrop of such a sharp decline, we were faced with a local overheating of short operations, where we can predict a possible rebound towards 1.3055-1.3080 together with a psychological level of 1.000, as well as a news flow. Due to alternative positions, monitoring of fixation points lower than 1.2960 continues.
From the point of view of a comprehensive indicator analysis, we see that the indicator took a downward direction due to a sharp surge in activity, although we can see a sharp change in interests due to overheating.
