From the point of view of complex analysis, we can see a gradual recovery process, which market participants have already expected.
The current trading week is almost ending. Over the past days, the quote managed to form a course, from the alternating support point towards the area of the interaction of trading forces 1.2240 / 1.2280, to which a slowdown was recorded. After which, in the daily chart, activity of traders fell and coincided with the area of interaction of trade forces, which became a signal of sorts that the quotes are ready for a recovery.
In medium-term trading, decreasing the quotes is still the main goal, the signal of which is the course on May 1, which formed a flat for one and a half month and restored the quote 46% relative to movement on March 20 to April 14. The levels that must be reached to resume the downward movement are 1.2000, 1.1850, 1.1660 and base 1.1411 / 1.1450.
As discussed in the previous review, traders are waiting for the recovery process that will occur after overcoming the area 1.2150 / 1.2180.
In terms of volatility, the indicator recorded a value lower than yesterday (from 65 points to 64 points), which is the same as the value recorded before for 28 trading days in a row. This means that accumulation has reached an extremely high level, and a sharp jump on volatility may be observed in the near future.
Looking at the daily chart, we can see a slowdown in activity, which may have served as a platform for the market participants to normalize their emotional mood.
The news published yesterday contained the preliminary data on business activity in the UK, the contents of which revealed an increase in the index of services sector from 13.40 to 27.80, higher than the forecasted 25.00. In the manufacturing sector, the data also turned out better than expected, as the index increased from 32.60 to 40.60. Such results pulled the composite business activity index up from 13.80 to 28.90. Previous forecasts expect a decrease in the PMIs, but the data published show a pretty significant improvement.
The pound rose because of the improving UK PMI data.
A similar data was published in the afternoon, where the US service sector saw an increase from 26.70 to 36.90, much better than the forecasted 30.00. In the manufacturing sector, PMI increased from 36.10 to 39.80, also higher than the forecasted 38.00. Composite business activity also grew from 27.00 to 36.40.
If we look onto the movement of the GBP / USD pair, we can say that the market reaction to the US PMI data is extremely sluggish.
The weekly report on US unemployment was also published. Another anti-record was set by repeated applications, which determined to 25,073,000, worse than the number of initial applications, which has been decreasing for a week, and gained to 2,438,000.
Meanwhile, the Bank of England published an analysis regarding the impact of the coronavirus in the UK economy. According to the report, quarantine measures affected almost all areas of the economy. Retail sales in March dropped by 80% compared to the same period last year, businesses such as restaurants have completely stopped operating, and the tour industry is going through one of the worst times. Flights departing from UK airports also fell by about 90%, and trips within the country by rail almost stopped. Bus trips were also reduced by 80%, and cars were reduced by about 60%.
The April data in UK retail sales was published today. According to the report, the index declined from -5.8% to -22.6%, the most significant decline recorded in 25 years.
The pound weakened due to such terrible statistics.
The upcoming trading week will begin with a day off in the UK and the United States. No other important occasion is expected, except the release of data on US unemployment and US GDP on Thursday.
Do not be discouraged though, as the external background is still high, and market participants almost constantly focus on such news.
The most interesting events that will happen next week are displayed below: (UTC + 1)
Monday, May 25
US - Memorial Day
UK - Bank holidays
Tuesday May 26
US 14:00 - S&P / CS composite housing price index with seasonal adjustments (Mar)
US 15:00 - New home sales (Apr)
Thursday, May 28
US 13:30 - weekly report on applications of unemployment benefits
US 13:30 - preliminary data for 1st quarter GDP
US 13:30 - orders for durable goods (Apr)
US 15:00 - index of pending sales in the real estate market (April)
Friday May 29
US 13:30 - preliminary data on wholesale sales (Apr)
Further development
Analyzing the current trading chart, we can see that the candle has already passed yesterday's low, which led to the convergence of prices in the area of 1.2150–1.2180. Such movement may lead to a decline, since the recovery process has not yet been fully achieved. If we refer to the two-day slowdown, we can say that activity may safely increase soon, and the update of May 18's low is just a matter of time.
The area of 1.2150 / 1.2180 will locally delay the quote, but not for long, since the movement has already been set and only a consolidation below 1.2140 remains, in order to continue the movement of the quotes to May 18's low.
Based on the above information, we derived these trading recommendations:
- Open sell positions to set off a rebound. Like what was instructed in the previous review, take profit from the area of 1.2180-1.2150, and then wait for a consolidation below 1.2140 to push the quotes to the value of 1.2080 or possibly to the psychological level of 1.2000.
- In local transactions, open buy positions in the area of 1.2150 / 1.2180 to push the quotes above 1.2190, towards 1.2230.
Indicator analysis
Analyzing the different sectors of the timeframes (TF), we can see that hourly and daily periods retain a sell signal, which confirms the intention of market participants to restore the movement.
Volatility per week / Measurement of volatility: Month; Quarter Year
The measurement of volatility reflects the average daily fluctuation, calculated by Month / Quarter / Year.
(May 22 was built, taking into account the time of publication of the article)
Volatility is currently 70 points, which is much higher than dynamics of the last two days. Thus, we can assume that accumulation serves as a catalyst of acceleration in volatility.
Key levels
Resistance Zones: 1.2250; 1.2350 **; 1.2500; 1.2620; 1.2725 *; 1.2770 **; 1.2885 *; 1.3000; 1.3170 **; 1.3300 **; 1.3600; 1.3850; 1.4000 ***; 1.4350 **.
Support areas: 1.2150 **; 1.2000 *** (1.1957); 1.1850; 1.1660; 1.1450 (1.1411); 1.1300; 1,1000; 1,0800; 1,0500; 1,0000.
* Periodic level
** Range Level
*** Psychological level
**** The article is built on the principle of conducting a transaction, with daily adjustments
