Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - sideways.
Moving average (20; smoothed) - upward.
The British pound continued its upward movement on Thursday, which began a couple of weeks ago. We questioned the opinion that the pound first fell sharply by 300 points and then rose sharply by the same amount due to the coronavirus pandemic in the UK. The pound was perfectly exactly getting cheaper when the number of disease cases was growing in Britain and began to get more expensive when the fourth "wave" went down. However, this option now looks quite reasonable. Yesterday, the pound continued to grow already based on data from the Fed and the United States. It is safe to say that the GDP statistics and the results of the Fed meeting disappointed the dollar bulls. However, we recall that we have long expected that the pound would resume an upward trend. If, in the case of the euro/dollar pair, the price did not reach the target level that we indicated, then in the case of the pound/dollar pair, the price ideally worked out to the range of 1.3600-1.3666, in which it turned upwards. Thus, the pound also formed the second round of a downward correction globally, so nothing prevents it from resuming the global upward trend now. It should also be noted that all the factors listed in the article on the euro/dollar also work for the pound. We see that in the last year and a half, both pairs have been moving identically by 80%. It suggests that the factors that affect the exchange rate formation are 80% the same. And if so, then they can only come from the United States.
Consequently, the Fed's quantitative stimulus program continues to work against the US currency. And since no one can say now when it will end, the dollar can safely continue to fall in price. We expect that the Fed may announce the beginning of its winding down no earlier than in 7-8 months since it is already clear to everyone that the global goal of the American regulator is to restore the labor market. And it will take him a very long time to recover. We would also like to draw attention to the fact that the COT reports on both the euro and the pound now indicate the opposite trend. Over the past five weeks, major players have been desperately reducing long positions in European currencies and increasing short ones. However, all that the euro and the pound could do was fall to their previous local lows. There is no question of any start of a new long-term downward trend now, although net positions on the euro and the pound have been declining for five weeks in a row. From our point of view, these are very significant moments, which primarily indicate that the usual "macroeconomics" and "foundation" continue to overlap with more global factors. Central banks and the Fed now decide the fate of the dollar, euro, or pound.
Now let's move on to the Fed meeting itself, although there is nothing to discuss here. Some traders were able to see the "hawkish notes" in Jerome Powell's speech this time. From our point of view, such traders just once again tried to see what they wanted to see. For several months, Jerome Powell has been saying that inflation will be allowed to exceed the 2% level to compensate for periods of low inflation. Powell has repeatedly said that the main thing is the recovery of the labor market. He has also repeatedly said that the economy continues to need stimulation. He repeated all these theses on Wednesday evening with only minor reservations. Thus, the Fed's rhetoric has not changed at all compared to previous meetings. It doesn't even make sense to list everything that Powell said at the press conference. The most important thing is that there was no word about whether the curtailment of the QE program will be discussed in the coming months or not. You can also draw the attention of traders that the Fed is not going to limit inflation, although Powell remarked that the Fed is ready to use all available tools to contain it. However, the "need" has not yet come. Thus, speaking as simply as possible, after the Fed meeting, only one conclusion can be drawn: nothing has changed.
Consequently, the overall fundamental picture has not changed either. Therefore, there is no reason to assume that the technical picture will somehow change. And according to the global technical picture, the pound has already adjusted twice within the framework of an upward trend. Therefore, it is time to resume the trend itself.
Separately, I would like to talk about the numerous news from the UK, which hypothetically can impact the pound. These are the disagreements that arose due to the "Northern Ireland protocol" between London and Brussels, the fourth "wave" of the epidemic, and the personality of Boris Johnson, which has recently been subjected to increasing criticism. From our point of view, all these are very significant factors. However, they will only have a local impact on the pound/dollar pair. So, taking them into account and tracking them is necessary, but not too zealously. I would also like to note that the US GDP in the second quarter fell far short of the forecast value of 8.5% and amounted to only 0.2% more than in the first quarter. Thus, we can talk about a slowdown in the pace of recovery of the American economy, which looks surprising.
The average volatility of the GBP/USD pair is currently 87 points per day. For the pound/dollar pair, this value is "average." On Friday, July 30, we expect movement inside the channel, limited by the levels of 1.3881 and 1.4055. A reversal of the Heiken Ashi indicator downwards signals a round of downward correction.
Nearest support levels:
S1 – 1.3916
S2 – 1.3855
S3 – 1.3794
Nearest resistance levels:
R1 – 1.3977
R2 – 1.4038
R3 – 1.4099
The GBP/USD pair continues to be located above the moving average on the 4-hour timeframe. Thus, today you should stay in the pair's purchases with the targets of 1.4038 and 1.4055 until the Heiken Ashi indicator turns down. Sell orders should be considered if the price is fixed below the moving average with targets of 1.3794 and 1.3733, and keep them open until the Heiken Ashi turns up.