Relevance up to 19:00 2020-05-21 UTC–5
Lateral movement was observed on the hourly chart for the pound/dollar pair on May 20. Quotes of the pair left the downward channel, although yesterday there were hopes that they would remain within it. At the same time, traders managed to overcome the resistance area of 1.2196-1.2215. Thus, at the moment, it is more preferable to continue the upward movement. However, we believe that it will be difficult for traders to go above the Senkou Span B line and before overcoming this line, we advise you not to buy the British pound, since so far everything is very similar to a protracted correction in a downward trend. If this hypothesis is confirmed, the pair will turn down and consolidate below the Kijun-sen line and the 1.2196-1.2215 area, which will enable us to conclude that the downward trend will resume.
The higher linear regression channel shows a continuing upward trend on the 15-minute timeframe. But the lower channel signals a turn down. Thus, our concerns about a possible downward movement based on an analysis of the hourly timeframe are not in vain. On the lowest timeframe, there is also reason to assume the end of the British currency’s growth.
The latest COT report for May 12 shows that the total number of buy and sell transactions among large traders per week increased by 4,000, mainly due to purchases. However, the total number of transactions for the purchase is only 16,000 more than transactions for selling. Such an imbalance persists for a long period of time, and it was not enough for the pair to begin forming an upward trend. In the reporting week, professional traders opened more new deals for sale (4539), which means that most of them are waiting for the British currency to fall again.
The fundamental background for the British pound remains sharply negative. Despite the fact that the macroeconomic background is equally disappointing both in the United States and Great Britain, we believe that the UK economy is experiencing and will face much more serious problems than the US economy, despite the fact that the latter has serious problems due to the highest unemployment. The business activity indices that will be published today in the US and Britain are unlikely to attract the attention of market participants. Jerome Powell’s speech in the evening can affect the course of trading. And even then, only if the Federal Reserve chief, who has recently been giving interviews almost daily, reports really new and interesting information.
We have two main options for the development of the event on May 21:
1) The initiative for the pound/dollar pair remains in the hands of the bears, despite the fact that the quotes have come out of the downward channel. Thus, we recommend buying the British pound no earlier than consolidating the price above the Senkou Span B line – 1.2323 and the resistance level of 1.2325 with the first target as the resistance area of 1.2404-1.2422. The next goal, in case of overcoming the area, will be the resistance level of 1.2550. Take profit will be about 75 points in the first case and 120 points in the second.
2) Sellers currently have greater chances to implement their trading ideas. It will be enough to return the price to the area below the Kijun-sen line and the 1.2196-1.2215 area in order to resume selling the pair while aiming for the May 18 low, 1.2073 and the support level of 1.1987. In this case, take profit will be about 105 and 190 points.
*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.
Performed by Paolo Greco,
InstaForex Group © 2007-2020
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