10.02.202111:59 Forex Analysis & Reviews: Sterling is growing by leaps and bounds. Is it worth preparing for a technical correction?

The medium-term upward trend for the pound sterling has practically broken through the 2500-point milestone, which is about 21% growth in 11 months. The growth is staggering when you consider all the economic problems that are inherent in the UK in such a difficult time.

The collapse caused by the coronavirus pandemic will continue to put pressure on the economy and society for a long time, and even after quarantine measures are eased, British pubs, bars, restaurants, and food retailers will face another blow.

Starting April this year, the UK will begin to introduce new controls on imports of food and beverages arriving from the European Union, which is about a third of the country's supply. Business owners who have not survived the coronavirus crisis fear that the new controls will lead to delays and disruptions in supply, which in turn will affect the satisfaction of consumer demand domestically.

"It will be like the Big Bang, the peak season for all peak seasons," said Peter Ward, chief executive of the UK Warehousing Association.

When the UK left the single market on December 31, exports were immediately subjected to border controls, resulting in delays and additional costs for businesses and stifling the flow of goods. The UK has delayed introducing import controls, but the first of these grace periods expire in April, threatening to trigger a second wave of violations.

Shane Brennan, chief executive officer of the Cold Chain Federation, said he is concerned that EU firms are unaware of the April deadline when the UK will require additional food paperwork, and a later date in July when all imports will require customs declarations and food products will have to come through special border posts.

Brennan is also concerned that the UK has not yet finished building infrastructure for border checks.

The EU exports 3.2 million tonnes of fresh fruits and vegetables to the UK annually, accounting for about 40% of British demand, according to Freshfel, a trade association representing the European fresh food supply chain.

Trade flow will be hit significantly in the coming months by new controls, Freshfel delegate general Philippe Binard said in a statement.

The restrictive measures will sooner or later come to naught, but the consequences of Britain's exit from the European Union will remain and will affect the carved areas of the UK economy.

What is happening on the trading chart?

The Pound/Dollar currency pair is relentlessly updating the maximum of the medium-term upward trend, where the quotes are no longer just moving at the levels of 2018, it is on the verge of converging with the peak of the previous upward trend.

With the current overbought status of the sterling, it is difficult to talk about the prospects for further growth, but given the high level of speculative excitement in the market, traders can block factors of oversaturation of long positions, as well as other economic problems.

The question is how much excitement will be enough in the market, and when the understanding of what is happening will come, since an unreasonable increase in the volume of long positions, in the end, can cost the sterling dearly.

A technical correction is a small part of what may arise in the market, the worst-case scenario may lead to a local collapse of the pound sterling.

Regarding the analysis of the trading chart on the daily period, you can see that the peak of the medium-term upward trend of 2018 is on the horizon, where the market reversal occurred. Speculators will sooner or later react to this factor, which can lead to a sharp reduction in the volume of long positions.

It is worth noting that the quotes are already in the range of interaction of trade forces in 2018 and we may not have to follow until the peak of the former trend - 1.4376.

Market prospects and expectations

Today, in terms of the economic calendar, we have the final data on inflation in the United States, where I predict its growth from 1.4% to 1.5%, which may have a positive effect on the value of the US dollar.

USA 08:30 EST - Inflation

If we proceed from the current fluctuation of the quotes, then we can see that speculators are not confused by the overbought pound sterling, we again update the local maximum of the trend. There is an assumption that speculators are drawing energy from the previously broken sideways channel along the 1.3700 mark, which took place on the market for almost a month.

If the speculative mood is retained in the market, the pound sterling may continue to grow towards the psychological level of 1.4000.

It is worth considering that working for an increase, it is already necessary to think about at least a technical correction now, so do not forget to consistently reduce the volume of long transactions and be prepared to change the side of a trade.

Indicator analysis

Analyzing different sectors of timeframes (TF), we see that the indicators of technical instruments unanimously signal a buy due to the movement of the quotes at the peak of the trend

Weekly volatility / Volatility measurement: Month; Quarter; Year

Measurement of volatility reflects the average daily fluctuation, calculated per Month / Quarter / Year.

(February 10 was built taking into account the time of publication of the article)

The dynamics of the current time is 52 points, which is already 54% lower than the average. In this case, the maximum activity may occur in the event of a correction

Key levels

Resistance zones: 1.3850; 1.4000 ***; 1.4350 **.

Support Zones: 1.3750 **; 1.3650 **; 1.3300; 1.3000 ***; 1.2840 / 1.2860 / 1.2885; 1.2770 **.

* Periodic level

** Range level

*** Psychological level