20.01.202111:52 Forex Analysis & Reviews: Analysis of GBP/USD on January 20. UK inflation supported the demand for pound

Exchange Rates 20.01.2021 analysis

The section of trend, which began on September 23, has taken a complete five-wave form. However, the internal wave pattern of the supposed wave 5 in 5 is still not fully convincing, which may require some additions and correction in the entire wave 5. Nevertheless, the upward trend has been long nearing its end. In any case, the pound still has high demand. A successful attempt to break the previous high (around 1.37th mark) will lead to another complication in the upward section of the trend.

Exchange Rates 20.01.2021 analysis

The wave marking in the smaller time frame also made certain changes and might likely be corrected again. Currently, it is quite possible to continue the growth of the pair within the 5 in 5 in 5 wave, but the wave pattern of wave 5 to 5 does not look quite convincing. A successful attempt to break down an important 127.2% Fibonacci level will indicate that the markets are ready to buy the pound again, which can further complicate the upward trend.

The demand for the pound has recently risen again, although there were no important news and reports from the UK during this period of time. Inflation report was only released this morning, which showed an acceleration to 0.6% y/y. Last month, the consumer price index was 0.3% y/y. Markets received such growth optimistically. At the moment, the quotes have already returned to the level of 1.37. Attempts to break through it failed three times. Nevertheless, the fourth attempt is expected to end successfully and if not, then we will try for the fifth time. And although the markets have not yet even built a three-wave correction structure in recent weeks, they still maintain a positive mood. Today, Bank of England's Governor, Andrew Bailey, will make another speech. The Governor was not extremely optimistic for the first time (at the beginning of the year), but the markets responded to it in the form of buying the pound. If Bailey discusses the topic of negative rates again and expresses his skepticism about them, the pound may grow even stronger.

All other news from the UK has currently no effect in the markets – neither the third lockdown, nor the growing COVID-19 case in the last month, nor the threat of recession. This means that nothing can stop the pound's increase. At the same time, news from the US about Donald Trump's resignation and Joe Biden's inauguration also do not have much impact. At the very least, it is difficult to draw a parallel between these events and the new fall in the dollar.

Overall conclusion and recommendations:

The GBP/USD pair can continue the construction of the upward section of the trend. Thus, it is recommended to buy this pair after it successfully breaks through the 127.2% Fibonacci level, with targets located near the 40th mark located within the expected 5 in 5 in 5 wave of the upward trend section. But if it fails to do so, the quotes may leave the reached highs.

*El análisis de mercado publicado aquí tiene la finalidad de incrementar su conocimiento, más no darle instrucciones para realizar una operación.

Chin Zhao,
Experto Analítico
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