4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - sideways.
CCI: -213.9285
The GBP/USD currency pair never managed to overcome the Murray level of "3/8"-1.2451. After three unsuccessful attempts to overcome and almost a whole week of flat, the pound/dollar pair pushed off from this level and began a downward movement, anchoring below the moving average line. Thus, now the question is as follows: will the downward movement continue, which will most likely also turn out to be very impressive, but will fall under the "correction against correction" characteristic, or is it just a swing of the pair after a weekly flat?
No macroeconomic statistics will be published in the United Kingdom and the United States on Monday, April 6. However, as we have repeatedly found out, now the fundamental background plays almost no role for traders. Despite the decrease in volatility in recent days, which indicates that market participants have calmed down, we still believe that the panic has not completely left the markets yet and may return at any moment. Our article on EUR/USD is fully dedicated to the topic of economic forecasts from world rating agencies, as well as EU officials. In this article, we will also look at the UK's economic prospects for the coming months.
If the virus itself and all its negative consequences are dangerous for the US and EU economies, then in the case of the UK, the unfinished Brexit is also added to the virus. Recall that by the end of 2020, the negotiating groups of Britain and the alliance must come to an agreement on the future relationship after the final break between them on December 31. However, in fact, the parties must come to an agreement or refuse to continue negotiations around the summer. Since it will be necessary to finally close the issue of whether the "transition period" will be extended for 2 years and during this time the agreement will still be able to sign or refuse to extend it, and then, most likely, Britain will leave the EU at the end of the year without any agreements. There was little chance that the negotiating teams of Michel Barnier and David Davis would come to an agreement even before the coronavirus epidemic. Now, when entire countries are in quarantine, and humanity is facing much more important and global health problems, negotiations between London and Brussels are actually put on pause. Thus, the uncertainty with the UK's exit from the EU has only become greater...
Various rating agencies predict the British economy will fall by 5% over the course of 2020. And it should be understood that even without taking into account Brexit and all its consequences, 5% is more than experts predict for the United States or the European Union. The fall in GDP in the UK could be the biggest in the past 60 years. According to many experts, the epidemic has exposed all the problems of the British health sector. Now, in times of epidemic, the British government actively needs to spend budget funds on this industry. Experts also note that the effect of the pandemic can be much more serious than from the "divorce" with the European Union. Experts in the medical field note that the British government was late with the moment when the infection spread in the early stages, when the epidemic could be stopped and cost less. Now that the country has a full-scale quarantine, we should not expect a quick recovery of the economy. At the moment, 43,000 cases of coronavirus have been recorded in the Foggy Albion, but experts note that the UK is about two weeks behind Spain or Italy. Thus, in just two weeks, Britain can reach levels of 120-130 thousand infected (levels that are now recorded in Italy and Spain). If the COVID-2019 epidemic continues until the end of the summer, the loss of the British economy will amount to much more than 5%. It is also noted that the UK is famous all over the world for its service sector, which employs the largest number of workers, and which also contributes a large part of GDP. The latest indicators of business activity in the services sectors of the developed world showed that they declined the most due to the "outbreak". Many indices have declined to values they have never been at before. This also applies to the UK, where business activity in the service sector fell to 34.5. It is also noted that the British economy will suffer due to a strong fall in oil prices. Although the country is not the largest producer and exporter of "black gold", but nevertheless. But, as they say, there is a silver lining. Experts also note that if Britain remained in the EU, it would now have to provide financial assistance to the most affected by the epidemic in Italy and Spain. However, we do not believe that financial assistance to these countries could cause a serious blow to the British economy. Moreover, after a few weeks, most of Britain may need help, and now London will not be able to count on the grant of the European Union.
Thus, from our point of view, it is the pound that will remain the outsider in the currency market during 2020. It should be understood that this does not mean that the fall in the British currency will resume tomorrow. This means that it is the pound that has the highest chance of falling during this and next year. There are too many problems now piling up in the British economy. In the short term, we expect the pound to decline against the dollar, at least to the levels of 1.1950-1.1820, after which a new round of upward movement is not excluded. However, as before, we recommend that you carefully monitor the trend indicators and especially the "fast" Heiken Ashi. Both linear regression channels are directed downward, signaling a downward trend in the medium and long term.
The average volatility of the GBP/USD pair continues to decline and is already 164 points. However, the activity of traders on the pound/dollar pair still remains quite high, which should be taken into account when opening any positions. On Monday, April 6, we expect movement within the channel, limited by the levels of 1.2099 and 1.2427. The flat can be considered completed at the moment. Turning the Heiken Ashi indicator upward will signal a round of upward correction.
Nearest support levels:
S1 - 1.2207
S2 - 1.1963
S3 - 1.1719
Nearest resistance levels:
R1 - 1.2451
R2 - 1.2695
R3 - 1.2939
Trading recommendations:
The GBP/USD pair started a downward movement on the 4-hour timeframe. Thus, sales of the pound with the goals of 1.2099 and 1.1963 are currently relevant, which is recommended to hold until the Heiken Ashi indicator turns up. It is recommended to open new buy positions if the bulls overcome the moving average with the first goal - the volatility level of 1.2427.
