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24-hour timeframe

Exchange Rates 04.04.2020 analysis

The British pound remained in one place for most of the past week. At the same time, its movement cannot be called flat in the literal sense of the word, since the pair continued to pass 100-200 points daily. Only on Friday, April 3, an attempt was made to resume the downward movement, and the price returned to the area below the critical line. However, from our point of view, it is too early to talk about resuming the downward movement. We believe that the currency market is beginning to calm down smoothly and therefore not only volatility will fall, but also the strength of movements. Based on this, if the markets do not again fall into a state of panic (which can only be caused by an emergency), the price is unlikely to fall to the support level of 1.1481 in the near future. Most likely, the channel of movement of the pound/dollar pair will now gradually narrow.

In the final article for April 3, we already said that now the pair has two main options for the development of events. Either a resumption of the downward trend or a "correction against correction". To be honest, we are still leaning towards the second option. Thus, we expect the pair to fall to the area of 1.18. However, as has been said many times, much will depend on the coronavirus epidemic, on the timing of the invention of the vaccine, on the duration and scale of the pandemic, and on the amount of damage that the epidemic will cause to the economy of each country. Thus, from an economic point of view, we may well witness a "second wave" of panic in the currency, commodity and stock markets. Now the number of infected people around the world is 1.1 million. Representatives of the health sector suggest that the "peak" has not yet passed. This means that there will only be more infected people every day. So the quarantine measures will be extended. This means that the economy will not recover and will continue to decline. And this is a very real prospect for the next one and a half to two months. In the UK, the number of people infected with the virus is approaching 40,000. In the last 24 hours, 684 people died, which is 20% more than the previous day. The total number of dead is 3,611. On this indicator, Britain is already ahead of China. Temporary field hospitals will be built in the country specifically for patients with the COVID-2019 virus.

Macroeconomic statistics in the UK on Friday were presented only by the index of business activity in the service sector, which fell from 53.2 to 34.5. In principle, all the countries in the eurozone were marked by similar reductions, so traders did not pay attention to this report. But in the United States, the economic information package deserved the highest attention. First, the unemployment rate for March was published. According to experts' forecasts, unemployment was expected to increase to 3.8%, but in reality, the growth was up to 4.4%. Given more than 10 million new applications for unemployment benefits in the 2 weeks of March, this level of unemployment is still quite good. Although in almost any case, it will grow and in April may begin to approach forecasts of the member of the monetary committee of the Fed, James Bullard, who talked about 20-25%. A hidden unemployment rate was also published by the US Statistics Office, which reflects not only the number of people temporarily unemployed, but also those who have work, but are dissatisfied with it and want, but cannot, change it. This indicator increased from 7% to 8.7%. The least important and significant indicator of changes in average wages in the current conditions increased in March by 3.1% in annual terms and by 0.4% in monthly terms. Finally, the number of new jobs created outside the agricultural sector Nonfarm Payrolls was -700 thousand, with a February value of +275 thousand and a forecast of -100 thousand. The last time a comparable NonFarm value was recorded was in 2008-2009, during the mortgage crisis. However, then everything started with a gradual reduction and only after 12 months, the absolute minimum value of about -800 thousand jobs was reached. Now it all started immediately with a drop of 700 thousand, which suggests that, first, the next months for NonFarm Payrolls will not be much better, but most likely worse, and, secondly, the American economy may suffer from the "coronavirus" epidemic much more than from the mortgage crisis.

This crazy day, in terms of statistics, ended with the publication of business activity indices in the US services sector. According to Markit, in March, business activity decreased from 49.4 to 39.8, and according to ISM – from 57.3 to 52.5. And from our point of view, the ISM index is completely untrue. Recall that any business activity value above 50.0 is considered positive. In other words, this sector of the economy is growing. How could there have been growth in the US service sector in March, when the epidemic was already raging and about 10 million people were applying for unemployment benefits? But in any case, traders could only fix in their notes the entire package of statistical information from overseas to use them in the future. Despite absolutely failed statistics from the United States, the US currency rose in price on Friday and did not pay any attention to the published information.

Thus, it follows from all the above that technical factors remain the most important and significant. The macroeconomic background can only show certain temporary moments when the mood of market participants may change. But it is recommended to trade 90% based on technical factors. On the 24-hour timeframe, we expect that the Bollinger Bands will begin to narrow, thus working out the fall in volatility. However, we recommend trading, as in the case of the euro/dollar pair, solely based on the analysis of the 4-hour timeframe. Moreover, it is on the 4-hour timeframe that the possible start of a new downward trend is now visible.

The last thing I would like to report is that British Prime Minister Boris Johnson remains in self-isolation in his residence at Downing Street, as he was previously infected with the "coronavirus" and at the moment he still has a high temperature and other signs of illness. On Twitter, he wrote: "Although I feel better and spent a week in isolation, unfortunately, I still have important symptoms. I still have a fever. According to government policy, I need to remain in isolation until all symptoms disappear. But we continue to work on our program to defeat this virus."

Trading recommendations:

On the 24-hour timeframe, the pound/dollar pair is trying to resume its downward movement, but we believe that it will not be as strong as the previous one. However, both timeframes (4h and 24h) indicate a resumption of downward movement. Therefore, it is recommended to consider sell positions and goals on the 4-hour timeframe. It is recommended to return to purchases of the British pound not before fixing the price above the Kijun-sen lines on both timeframes.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Viele Grüße,
Analytiker: Paolo Greco
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