4-hour timeframe
Technical data:
The upper channel of linear regression: direction - up.
The lower channel of linear regression: direction - up.
The moving average (20; smoothed) - down.
CCI: 35.6101
We have repeatedly said that we do not see any other scenario for the British pound, except for a further fall. It remains only to find out when it will resume because during the New Year and Christmas holidays, the pair still began an upward correction, which from a technical point of view has been brewing for a long time, but from a fundamental point of view - it might not be at all. We still believe that the British pound, with its rise to 1.35, has simply exhausted the limit of luck for the next few years. Thus, the main issue for the pound/dollar pair is the resumption of the downward trend after the correction is completed.
The first factor that will help us determine the possible end of the corrective movement is moving. The price came close to this line, so it is very likely to rebound from it with the resumption of downward movement. If the price overcomes the moving average line, the trend will change to an upward one and we can expect a stronger upward correction.
The second factor is the fundamental background. It speaks unequivocally in favor of the US dollar, it is strengthening, and the fall of the British currency as low as possible. In short, this factor contains such theses as the failed macroeconomic statistics in the UK over the past 2 and a half month, good statistics in the United States in the last month and a half, the strong monetary policy of the Fed compared to the Bank of England, the high probability of lowering the key rate by the British Regulator, Brexit, uncertainty in trade relations between the EU and the UK after January 31, 2020, Boris Johnson's tough position on negotiations with the European Union and mutual concessions. All this, from our point of view, works and will work against the pound.
The third factor is the local macroeconomic reports. As we have already said, no important macroeconomic publications are planned for either the United States or the United Kingdom until January 2, 2020. But on January 2, in the UK, in the European Union, and the United States, indices of business activity in the areas of production, which, we recall, have a very high value in recent months will be published. For example, according to experts' forecasts, business activity in the UK manufacturing sector will remain unchanged - 47.4, in the European Union - 45.9, in Germany - 43.4. If these figures are confirmed, what can be expected on this day from the pound and the euro? Let's say that traders will ignore these reports, but these indicators will harm the volume of industrial production, and on other indicators of the state of the economy since it is one of the main industries. By the way, in the case of the United Kingdom, not only business activity in the industry is deep in the "recession zone". Business activity in the service sector, in the construction sector - is also below the level of 50.0, that is, they also recorded a decline.
The fourth factor is the geopolitical problems of the UK after the Brexit. Recall that the talk about the Scottish independence referendum has been going on for a long time. Nicola Sturgeon has repeatedly said that her country wants to stay in the EU, rather than follow the "absurd" ideas of Boris Johnson and depend on the will of London. Until a week ago, the UK Parliament approved Johnson's deal to leave the EU, there were still faint hopes that Brexit would be canceled or postponed, but now there is no hope. Thus, Edinburgh intends to put the question of the referendum edge. Of course, London will oppose such a process, but Edinburgh can hold a referendum without London's approval. This, of course, will divide the States for many years, and it may even come to a military conflict. And all of these are potential problems for the UK and the pound. How much will Britain's GDP fall if Scotland leaves?
The average volatility of the pound/dollar pair over the past 5 days is 96 points, remaining at a fairly high level, but the downward trend is visible to the naked eye. According to the current level of volatility, the working channel on December 27 is limited to the levels of 1.2895 and 1.3086. Volatility may continue to decline during the Christmas and New Year weeks.
Nearest support levels:
S1 - 1.2939
S2 - 1.2878
S3 - 1.2817
Nearest resistance levels:
R1 - 1.3000
R2 - 1.3062
R3 - 1.3123
Trading recommendations:
The GBP/USD pair continues its upward correction. Thus, traders are advised to sell the British currency with the nearest targets of 1.2939 and 1.2895 after the reversal of the Heiken Ashi indicator back down or in the case of a price rebound from the moving average. It is recommended to return to the purchases of the pound/dollar pair not earlier than the reverse consolidation above the moving average line with the first target of 1.3086. It is recommended to open any positions very carefully.
In addition to the technical picture, you should also take into account the fundamental data and the time of their release.
Explanation of the illustrations:
The upper channel of linear regression - the blue lines of the unidirectional movement.
The lower channel of linear regression - the purple lines of the unidirectional movement.
CCI - the blue line in the indicator regression window.
The moving average (20; smoothed) - the blue line on the price chart.
Murray levels - multi-colored horizontal stripes.
Heiken Ashi - an indicator that colors bars in blue or purple.
Possible variants of the price movement:
Red and green arrows.