4-hour timeframe
Technical details:
Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - upward.
CCI: 113.8901
On May 27, the British pound corrected to the moving average line but failed to gain a foothold below it, so yesterday it rebounded and resumed its upward movement. However, the previous local maximum was not reached this time, so the prospects for bulls remain very vague. However, the upward direction of the Heiken Ashi indicator shows an upward trend in the most short-term plan. The volatility of the currency pair remains average. During the past day, it was passed from a minimum to a maximum of about 110 points. The day before yesterday, the CCI indicator entered the overbought area, which indicates a very possible beginning of a downward trend in the near future. There is almost no correlation with the euro/dollar pair at the moment because both pairs are affected by different fundamental backgrounds. Thus, nothing will prevent sellers from re-entering the market. Also, both channels of linear regression continue to be directed downward, which maintains a downward trend in the medium and long term.
We have already written about the macroeconomic statistics of the last day in the article on the euro/dollar. In the UK itself, no macroeconomic events are planned for this week, so there is essentially nothing to analyze. Macroeconomic statistics from overseas yesterday provided support for the British pound in the short term, but also, as in the case of the euro currency, we do not believe that the pound has sufficient support for the fundamental or macroeconomic background to start a new upward trend. Thus, the maximum that the British currency can expect in the near future is a correction. Key issues that put pressure on the British pound in the medium and long term remain unresolved. One of these issues is most acute right now. We are talking about negotiations with Brussels on a comprehensive agreement that will determine the relationship between the Kingdom and the Alliance after 2020 when Brexit will be officially completed. Recall that negotiations on this agreement began in March and take place every month for one week, in the format of a video link. Initially, few experts and analysts expected that the parties would be able to reach an agreement in such a short time. With each successive round of negotiations, these fears were only confirmed. So far, three rounds have been completed and since the last one, the parties have stated that there has been no progress on key issues and accused each other of being unwilling to concede. And now, according to the latest information from David Frost, the official representative at the talks from London, Boris Johnson personally intends to visit Brussels in the second half of June and discuss with the head of the European Commission, Ursula von der Leyen, and the President of the European Council, Charles Michel, the prospects for an agreement. Boris Johnson will try to understand whether there are any prospects for further negotiations with Brussels. Earlier, the British Prime Minister has repeatedly stated that he is ready to sever all ties with the EU without any deals and agreements. Thus, if Johnson's visit to Brussels turns out to be unsuccessful, it is likely that London will cancel any further negotiations altogether.
Also recently, the chief economist of the Bank of England, Andy Haldane, spoke. It partly dispelled traders' fears that the regulator is preparing to introduce negative interest rates, as previously hinted by the head of the Bank of England, Andrew Bailey. He said that the BA is currently at the stage of evaluating the option of introducing negative rates, but is also considering other options for additional stimulus to the economy. BA's chief economist also said that the British economy will not be able to recover as quickly as it has shrunk, and is unlikely to reach pre-crisis levels until the end of 2021.
At the same time, events in the United States is rapidly gaining momentum. Recall that in recent weeks, the problem of a new conflict and even a new "cold war" between China and America has become more acute. If just a few weeks ago the main issue was Washington's claims to Beijing over the "coronavirus", now the stumbling block is already Hong Kong. China wants to pass a law "on national security in Hong Kong", which, in fact, will give Beijing more control over the region, which has been autonomous since 1984. Washington is actively trading with Hong Kong, granting it many preferences and threatening to take them back, as well as impose sanctions against China and Hong Kong if Beijing passes this law. Yesterday, US Secretary of State Mike Pompeo told Congress that Hong Kong could not be considered autonomous if Beijing passed the law. Thus, if Hong Kong loses its autonomy, the US Congress can revoke the special trade status of this region.
Hong Kong is a special region of China with its own laws, its own political system, its own passports, and even its own language. Hong Kong also has its own judicial system, its own currency, and its own exchange. It is through Hong Kong that up to 60-70% of foreign investment flows to China. And this "window" to the outside world, Beijing has long wanted to "close", but not lose the foreign investment. Now it is the United States that can independently "close" this "window", which, in fact, will make Hong Kong an ordinary part of China, which will be subject to all the restrictions, sanctions and duties imposed by Washington and which may still be imposed in the future. Beijing wants to pass a law that will make it possible to criminalize separatism, terrorism, foreign interference, and subversion of power. That is, in fact, Beijing will have all the necessary levers to manage Hong Kong since anyone can fall under the above list. Interestingly, the Hong Kong authorities themselves support this law.
No important publications are scheduled for the last trading day of the week or month in the UK again. Thus, since only secondary reports will be released in the United States today, we believe that volatility may decrease slightly, and the pound/dollar pair may begin to adjust. At the same time, we remind you that technical indicators are now the most important tool for analysis, since most of the macroeconomic statistics continue to be ignored by market participants.
The average volatility of the GBP/USD pair has increased due to the last three days and is now 110 points. On Friday, May 29, thus, we expect movement within the channel, limited by the levels of 1.2222 and 1.2442. Turning the Heiken Ashi indicator down will indicate a new round of downward correction. Fixing the price below the moving average will change the downward trend.
Nearest support levels:
S1 – 1.2268
S2 – 1.2207
S3 – 1.2146
Nearest resistance levels:
R1 – 1.2329
R2 – 1.2390
R3 – 1.2451
Trading recommendations:
The GBP / USD pair resumed its upward movement on the 4-hour timeframe. Thus, today it is recommended to continue trading the pound/dollar pair for an increase with the goals of 1.2390 and 1.2442 and keep the longs open until the Heiken Ashi indicator turns down. It is recommended to sell the pound/dollar pair when the bears manage to return to the area below the moving average, with the first targets of 1.2207 and 1.2146.
