At first glance, the decline of the pound, which began during the European trading session, looks absolutely logical. After all, preliminary estimates of business activity indices, instead of growth, generally showed a decline. Although the manufacturing index should have dropped from 57.9 points to 57.0 points. Other indices should have shown growth. In fact, the manufacturing index fell to 56.9 points, which in general does not differ much from the forecast. On the other hand, the index of business activity in the service sector fell from 53.6 points to 53.3 points, while it was expected to rise to 54.0 points. This was the reason for the decline in the composite index of business activity from 53.6 points to 53.4 points, with the forecast of growth to 54.0 points.
Composite PMI (UK):
However, the pound continued to decline even after the opening of the US session, although in the United States the indices also came out worse than expected. Which and so were exclusively negative. Thus, the index of business activity in the manufacturing sector decreased from 57.7 points to 55.0 points, while the forecast was 57.0 points. The index of business activity in the service sector fell from 57.6 points to 50.9 points, while it was expected to fall only to 56.0 points. Due to this, the composite index of business activity fell from 57.0 points to 50.8 points. It was expected to decrease to 56.7 points. So the reason for the pound's decline lies outside the plane of the published data. Judging by the fact that its decline began literally at the opening of the market, that is, before the publication of the data, this is due solely to political factors. Namely, with the official statement of the UK Foreign Office on the evacuation of its employees and their families from Ukraine. The reason is said to be the expectation of a Russian invasion. But as you can see, if before it worked in one direction, now it seems to be a double-edged sword that hit the other side of the verbal confrontation. The truth is not so much. But this is already a signal that Europe needs to be more careful with rhetoric and sharp demarches.
Composite PMI (United States):
From the point of view of fundamental analysis, today the market should stand still, as the macroeconomic calendar is completely empty. However, a meeting of the Federal Open Market Committee will take place tomorrow, and given that there is no consensus on the market regarding its results, we are likely to face all sorts of speculations on this topic. But they will begin no earlier than the opening of the US trading session. Considering that the probability of any change in the parameters of monetary policy during this meeting is close to zero, then speculations will be aimed precisely at strengthening the dollar. So that tomorrow, following the results of the meeting, will play for the weakening of the US currency.
An intensive downward move in the GBPUSD pair led to an increase in the corrective movement from the local high on January 13 - 1.3747. As a result, the overall scale of the weakening of the pound amounted to 300 points. This means that the corrective move may change to a recovery move relative to the ascending cycle in the period from 12/20/21 to 01/13/22.
The RSI technical instrument in the four-hour period entered the oversold zone locally, but then rolled back to the level of 30. RSI (D1) does not signal that the British currency is oversold, the indicator only crossed the 50 line from top to bottom.
The Alligator (D1) indicator has an intertwining between the moving MA lines, which indicates the completion of the upward cycle. The indicator in the four-hour period confirms the process of recovery by the movement of the MA lines on a downward trajectory.
Expectations and prospects:
In this situation, there is a local signal that the pound is oversold in the short term. This can lead to a slowdown in the downward cycle and, as a result, a technical pullback. In order for the downward move to be prolonged to new price levels, first of all, the bears need to update the local low of the previous day.
A complex indicator analysis gives a sell signal based on the short-term and intraday periods due to the intense downward move. Technical indicators in the medium term changed the upward signal to a downward one.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
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