Using complex analysis, we can see a characteristic acceleration directed downwards. If we go into detail, the hourly chart, even before the surge in activity, observed a remarkable stagnation of about 40 hours, where there were local jumps but no movement. The main drive came on Friday, where the quote literally broke, showing inertia and reaching the mark of the beginning of the week. In fact, the market interest has changed again, as the zigzag-shaped model theory continues to develop. Previously, it was assumed that the measure on January 14-17 is the final one, and the compression of the quote has reached its limit, however, there is was, not yet completed. After repeated analysis, we found that the pulse rate in the model structure is more than 60% relative to the correction rate, and the current pulse fluctuation amounted to just 66%, which is the finish in this phase.
Details of the Zigzag-shaped model:
The first phase of correction – 609 points, 13.12.19 (High) -23.12.19
The first cycle of the pulse – 378 points, 23.12.19-31.12.19 [62% relative to the phase]
The second phase of correction – 329 points, 31.12.19 (High) -14.01.20
Second pulse cycle – 218 points, 14.01.20-24.01.20 [66% relative to the phase]
It turns out that the correction phase [#3] is still in the process of formation, and the assumed pivot point, referring to statistical data, is in the area of the psychological level of 1.3000, which means that the market compression is still in process.
In terms of volatility, we see an acceleration of about 112% relative to Thursday, and 22% relative to the daily average.
Analyzing Friday's every minute, we observed that the acceleration came for the period of 9:30-15:30 London time [time on the trading terminal], where after 9:30, there was a given inertia.
As discussed in the previous review, speculators partially entered short positions on Thursday from the value of 1.3115. On Friday, at the moment of inertia, top-ups took place in the position.
Looking at the trading chart in general terms [the daily period], we can see that the compression theory, derived from the Zigzag-shaped model, is still in the formation phase. Let me remind you that this model is formed at the conditional peak of the medium-term upward trend.
The news background on Friday afternoon had preliminary data. The PMI of Britain, as expected, increased, having the manufacturing sector frow from 47.5 to 49.8, and the service sector to grow from 50 to 52.9. The indicators came out better than the forecasts.
The market's reaction to the not-so-bad statistics was in terms of a fleeting strengthening of the pound, where the pound collapsed almost immediately. What is the reason for such a sharp change in mood? The answer to this question lies in the noise of the media, as it published news regarding the Bank of England's rate at the same hour. A well-known Bloomberg source suggested that the regulator will reduce the rate by 25 basis points at the next meeting, even though it was not discussed a day earlier. This noise played a role, pushing the pound to do a downward dive.
In terms of the general information background, we have a discussion regarding Britain's early exit from the European Union. Prime Minister Boris Johnson do not waste time, and learned from the examples of conducting the world game with his friend Donald Trump. It seems that only the other day, Johnson was ready to do everything in front of Brussels to get his deal supported. Now, he's already considering 10% duties on German cars and 13% duties on certain varieties of French cheeses as a kind of lever in future negotiations with the EU. In addition, according to the Johnson plan, the EU will not be a priority of the United Kingdom in the framework of trade negotiations: first of all, London is aimed at concluding agreements with the United States, Japan, Australia and New Zealand.
On today's economic calendar, we have data on mortgage approvals in Britain, where the reduction from 43.7 thousand to 42.5 thousand will be published. In the second half of the day, data on new home sales for the United States, where the reduction from 725 thousand to 719 thousand will be published.
Further Development
Analyzing the current trading chart, a characteristic pullback can be seen based on local oversold, where the quote locally bounced towards the 1.3085 mark, reflecting a variable point of small interaction. In fact, a kind of downward interest still persists in the market, where the regrouping of trading forces with local fixing of transactions was literally necessary for a healthy market tact.
In terms of the emotional mood of the market, we can see a high coefficient of speculative positions, which may indicate a continuing acceleration.
Detailing the minute-by-minute time period, we can see that at the start of the European trading session, there was a pullback, which returned us to the limits of Friday's stagnation.
In turn, speculators, having a solid profit from short positions, moved to partial and full fixing of transactions, leaving the prospect for further decline. Re-entering the trading transactions there is always an opportunity to take risks, keeping an impressive volume in the market.
Having a general picture of the actions, it is possible to assume that a local rollback / stagnation was necessary. The most interesting point is whether the quote will be able to get closer to the psychological level of 1.3000, completing the subsequent cycle of the Zigzag-shaped model. If the expectation matches, we will get another compression of the quote, which may lead to a more significant acceleration with the breakdown of the specified model.
Based on the above information, we will output these trading recommendations:
- Buy positions if the price fixes higher than 1.3090
- Sell positions if the price fixes below 1.3035, with the prospect of 1.3000. The next step will be considered after the rapprochement, depending on the behavior of the quote.
Indicator analysis
Analyzing different sectors of the timeframes (TF), we can see a neutral interest that is on the verge of changing. There is a possibility that when we return to the pivot point, we will quickly change the mood to a downward one.
Volatility for the week / Volatility measurement: Month; Quarter; Year
The volatility measurement reflects the average daily fluctuation, based on the calculation for the Month / Quarter / Year.
(January 27 was based on the time of publication of the article)
The current volatility is 34 points, which is a low value for this time period. Acceleration may still occur, but perhaps within the daily average.
Key level
Resistance zones: 1,3180**; 1,3300**; 1,3600; 1,3850; 1,4000***; 1,4350**.
Support areas: 1,3000; 1,2885*; 1,2770**; 1,2700*; 1,2620; 1,2580*; 1,2500**; 1,2350**; 1,2205(+/- 10p.)*; 1,2150**; 1,2000***; 1,1700; 1,1475**.
* Periodic level
** Range level
***Psychological level
**** The article is based on the principle of conducting a transaction, with daily adjustments.
