4-hour timeframe

Technical details:

Higher linear regression channel: direction - downward.

Lower linear regression channel: direction - downward.

Moving average (20; smoothed) - downward.

CCI: -136.6106

The British pound continued its downward movement on Tuesday, while the euro/dollar pair practically did not move from its place. Thus, we can assume that the reasons for the collapse of the British currency should be sought in the UK. And it will not be possible to spend a lot of time to find out what these reasons are. As we have already understood, Brexit has long been of no interest to market participants. At least, until the conflict between London and Brussels escalates over the trade agreement and the "Northern Ireland Protocol." But the markets react very painfully to the growing number of cases of the "coronavirus" disease every day. The UK has already been included in the lists of "not recommended for visiting" in many countries of the world. And at the same time, the UK authorities completely lifted all quarantine restrictions this Monday. Thus, whatever plans the British government has regarding curbing the spread of the "coronavirus," the markets consider its actions wrong. Therefore, the sales of the British currency continue. In previous articles, we have already said that we fully expect the pound/dollar pair in the area of 1.3600-1.3666. However, this area has already been worked out and even overcome. Therefore, at the moment, the downward movement continues based on the epidemiological situation in the Foggy Albion. In the current conditions, the downward movement may continue further. For its analysis, there is a 4-hour timeframe and a trading system "Linear Regression Channels." Since, at the moment, the pair's quotes are below the moving average line, there is no doubt that the downward trend continues. Therefore, you should continue to trade down, especially since the Heiken Ashi indicator has not signaled even a correction in recent days. Thus, there is no reason to buy the pound/dollar pair now.

We have already said earlier that the British authorities are playing with fire. At the same time, this applies to the fate of an entire nation and its destinies. The story of Boris Johnson's phrase that he "would rather see a mountain of corpses than enter a lockdown" is still fresh in my memory. Of course, there is no evidence that Johnson uttered this phrase. Nevertheless, a stain on Johnson's reputation has formed. The markets also did not forget about the statements of Johnson's former chief adviser Dominic Cummings. He said that the entire British government showed itself surprisingly incompetent during the first and second "waves" of the pandemic in 2020 and made many wrong decisions because tens of thousands of Britons died. Thus, the current decision of the British government to fully open the economy and the country will be viewed under the microscope by opposition political forces, skeptics, and all those who are worried about the health of the British nation.

In the last two days, the number of daily recorded cases of the disease has declined, and the day before yesterday, only 40 thousand new cases were recorded. However, 40 thousand is still a lot. And no one can guarantee that tomorrow, these figures will not creep up again. The UK government itself does not give almost any comments about the fourth "wave." Just yesterday, Chief Scientific Adviser Patrick Vallance said that 60% of people admitted to the hospital with complications are unvaccinated. Thus, the public should have concluded that all vaccinated Britons have nothing to fear from this statement. However, other data suggest that even those Britons who received both doses of the vaccine get to hospitals, and 90% of newly ill people were infected with the "Indian strain." In addition, some media outlets accuse the British authorities of correcting real data on mortality during the fourth "wave."

Thus, the markets' reaction is now the most eloquent explanation of what is happening in the UK. We want to remind you that over the past year and a half, when the fundamental background in Britain remained extremely weak, the pound felt just fine, only occasionally showing small declines and corrections. Thus, the current drop in quotes, which is not provoked by the "more hawkish rhetoric of the Fed than the Bank of England" (as in the case of the euro currency), can only be explained by the fourth "wave" of the pandemic, which is far from all countries of the world. It has already gained such a scale in the UK that even countries with higher populations and weaker vaccination rates have moved from the first places of this anti-rating. Based on this, we can conclude that the pound will stop falling when the fourth "wave" goes down. The number of daily recorded cases of diseases should decrease to at least 20 thousand per day. In addition, there should be confirmation from independent sources that the British government does not hide the real scale of the pandemic and mortality from the "Indian strain." Until then, the pound/dollar pair may continue its decline, as the prospects for the UK economy have deteriorated sharply in recent weeks. Many experts fear that such a negligent attitude of the British authorities to the pandemic (as in the first wave and the second) may lead to the need to re-introduce a total quarantine. It will undoubtedly harm the recovery of the British economy, which in recent years has regularly received "kicks of fate." Recall that over the next few years, the British economy will experience the negative consequences of Brexit. And if the conflict with the European Union continues to worsen, it may also leave a dark mark on the prospects of the British economy. Thus, the situation in the UK is unfortunate now, and it is unknown how everything can end.

The average volatility of the GBP/USD pair is currently 105 points per day. For the pound/dollar pair, this value is "high." On Wednesday, July 21, we expect movement inside the channel, limited by the levels of 1.3513 and 1.3725. The upward reversal of the Heiken Ashi indicator signals a round of upward correction.

Nearest support levels:

S1 – 1.3611

S2 – 1.3550

Nearest resistance levels:

R1 – 1.3672

R2 – 1.3733

R3 – 1.3794

Trading recommendations:

The GBP/USD pair continues a relatively strong downward movement on the 4-hour timeframe. Thus, today it is possible to stay in sell orders with targets of 1.3550 and 1.3513 until the Heiken Ashi indicator turns up. Buy orders should be considered if the price is fixed above the moving average with targets of 1.3794 and 1.3855, and keep them open until the Heiken Ashi turns down.