Higher linear regression channel: direction - downward.
Lower linear regression channel: direction - downward.
Moving average (20; smoothed) - downward.
The British pound was trading uncontrollably on Friday. And that's an understatement. The quotes of the British currency began to grow in the morning and this growth continued throughout the day. Even late in the evening, when volatility traditionally falls before the market closes, purchases of the British pound continue. The European currency also rose in price on Friday, but it was trading very calmly. But what was the reason for the 150 points of growth of the British currency? It should be noted right away that we considered the option of resuming the upward movement on the 4-hour timeframe a long time ago. In recent months, we have repeatedly warned traders that global fundamental factors remain on the side of the British currency, not the American one. In favor of continuing the fall of the pair, only the technical factor of a possible another round of correction on the 24-hour timeframe spoke, within which we expected the quotes to fall to the area of 1.3600-1.3666. However, it is quite possible that this round of corrective movement ended earlier. At least, since the quotes were fixed above the moving average on Friday, this means that in the short term the trend has changed to an upward one. Thus, this week, we can expect the continuation of the upward movement, especially since the macroeconomic background will be quite weak. Now let's look at the possible reasons for such a strong growth of the pair on Friday.
It should be noted at once that the growth began almost from the very beginning of the European trading session and persisted almost all day. What could have provoked such a sharp and strong upward movement? In the morning, data on GDP and industrial production for May were published in the UK. To complete the picture, we will say that secondary reports on construction volumes, the balance of visible trade, and the index of activity in the service sector were also published. And all the reports turned out to be failures. The most disappointing was GDP, which according to forecasts should have been 1.5% in monthly terms, but in practice, it added only 0.8%. Industrial production also failed badly. Thus, the fall of the British is what we should have seen on Friday. And if we add here 36 thousand new cases of the "coronavirus" on the same Friday and the very much reduced chances of lifting the quarantine on July 19 and at least talk in the Bank of England about curtailing the quantitative stimulus program, then Friday's movement looks very strange. However, we saw an increase of 140 points after the publication of the failure statistics. Perhaps such a strong growth of the pair was associated with American statistics? It is unlikely since the statistics themselves were not published in the States on Friday. Andrew Bailey's speech, which began much later than the beginning of the growth of the British currency, could also hardly have such a strong impact on the markets since the head of BA simply did not say anything important. Thus, the reasons should be sought only in the technical plane or among global factors. What could have happened? We have already said many times that we expect the US currency to resume falling. We believe that the factor of pumping money into the US economy will continue to negatively affect the dollar exchange rate until all the stimulus programs from the US government and the Fed are completed. And since the Fed is just going to start discussing in the near future the possibility of curtailing the QE program, it is unlikely that we should expect this condition to be fulfilled in the near future. But it should also be understood that if such a global and important factor takes place in the market, it still does not mean that the pair will constantly move in the same direction even without pullbacks. And in global terms (on a 24-hour timeframe), corrections can take quite a long time, which we have observed for the pound in recent months. Thus, we believe that the most banal thing that has happened on Friday. Most of the bears began to simply close short positions on the pound, not believing that the dollar can continue strengthening. Earlier, we said that the pullback of both the euro and the pound from their year highs and 3-year highs may be a banal acceleration before a new powerful upward movement, within which 3-year highs will be updated. Therefore, perhaps now the movement that we have warned about in recent months has just begun. Now it remains only to understand whether this is the case. But in any case, in the 4-hour timeframe, the trend has changed to an upward one, therefore, we should now consider trading for an increase.
Next week, from the really important reports, we can highlight the reports on inflation in the US and the UK, as well as the unemployment rate and applications for unemployment benefits in Britain and retail sales in the US. It should be remembered that in case of a coincidence of the actual and forecast values for any report, the reaction of traders may not follow at all. It should also be remembered that any of these reports can simply be ignored by the markets. Simply because now many reports are ignored. And on Friday, a strong upward movement also began, so traders (if they intend to continue pushing the pound up) may not pay any attention at all to the statistics for the new week. In general, we believe that more attention should be paid to technical analysis, and the macroeconomic background should be taken into account.
The average volatility of the GBP/USD pair is currently 94 points per day. For the pound/dollar pair, this value is "average". On Monday, July 12, we expect movement inside the channel, limited by the levels of 1.3689 and 1.3863. The upward reversal of the Heiken Ashi indicator signals a round of downward correction.
Nearest support levels:
S1 – 1.3885
S2 – 1.3855
S3 – 1.3824
Nearest resistance levels:
R1 – 1.3916
R2 – 1.3947
R3 – 1.3977
The GBP/USD pair on the 4-hour timeframe abruptly began an upward movement, which may become a new upward trend. Thus, today it is recommended to stay in buy orders with targets of 1.3947 and 1.3997 until the Heiken Ashi indicator turns down. Sell orders should now be opened if the price is fixed below the moving average line with targets of 1.3763 and 1.3733, and keep them open until the Heiken Ashi turns up.
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