11.02.202112:34 Forex Analysis & Reviews: Thinking outside the box while sterling rises, preparing for a decline

In the previous article, we raised the topic of possible problems associated with the consequences of Brexit, which may occur very soon. This time, we will analyze the damage to retailers from pandemic blockages.

The year 2020 has caused irreparable damage to the UK retail industry, with three pandemic lockdowns costing retailers an estimated £22 billion ($31 billion) in lost sales.

The British Retail Consortium said that 2020 was the worst year on record, with sales of non-food items in stores down 24% compared to 2019. Foot traffic in stores declined by more than 40% in 2020 as consumers shunned shopping malls and turned to online shopping instead.

British clothing retailer Ted Baker said on Thursday that its sales fell 47% in the latest quarter as pandemic restrictions reduced demand for festive outfits over the Christmas season. Even when stores were open between lockdowns, many consumers stayed away, the British fashion retailer said.

Ted Baker representatives said they now expect the store closures to have a significant impact on their business through May before a gradual recovery begins in the second half of the calendar year.

UK retailers were among the hardest hit by the pandemic, as non-essential stores were forced to close for weeks on end during lockdowns, as well as investing in Covid security measures to protect staff and customers when stores were open. Demand for online shopping has soared, stretching the e-commerce potential of many retailers.

In turn, the British company Associated British Foods Plc, the owner of the budget clothing retailer Primark, said that if the pandemic lockdowns in Europe last until the end of February, it could lead to more than £1 billion of lost sales. The British company said it had already lost £540 million in sales due to the autumn lockdowns.

The British consortium is urging the government to use the upcoming budget to expand the current rental and business rate incentives, a form of UK property tax, to keep stores and businesses afloat.

As you can see, we have another signal of concern for investors, who are already in a bad state.

The growth in the value of the pound is justified by the speculative behavior of market participants, but not by fundamental data for the medium/long term.

What happens on the trading chart?

The pound sterling does not pay attention to the high level of overbought, where you can almost see the update of the maximum of the medium-term trend daily. The situation is very difficult because we are close to the maximum of the previous medium-term trend from 2018.

Now, imagine that the snowball of the UK's economic problems grows to such a size that traders and speculators simply cannot ignore it, and the result is a collapse.

I do not deny that speculating on the value of the sterling is quite an interesting idea, it has already brought a lot of profit, but when something grows strongly in price, you should always work out an alternative scenario for the development of the market so as not to be trapped in the presentation.

Market prospects and expectations

Today, in terms of the economic calendar, the weekly data on claims for unemployment benefits in the United States is expected, which is assumed to decline. The recovery of the labor market is considered a positive factor for the national currency, but in this case, when working with the pound, you should carefully monitor the speculative behavior of market participants.

The volume of initial applications for benefits may be reduced from 779,000 to 757,000.

The volume of repeated applications for benefits may be reduced from 4.592 million to 4.490 million.

USA, 08:30 EST - Claims for unemployment benefits

If we proceed from the current fluctuation of the quotes, then we can see that the speculative excitement keeps us at the peak of the trend, forming a slight rollback-stagnation. It can be assumed that if the current maximum of 1.3865 is updated, speculators will again continue to raise the value of the British currency in the direction of 1.3950-1.4000.

I advise you to cut the volume of long positions by at least half due to the high risk of a technical correction.

A reversal is possible literally at any time if you start from the current location of the price, then keeping the quotes below 1.3800 can already provoke an initial correction towards 1.3700.

Indicator analysis

Analyzing different sectors of timeframes (TF), we see that the indicators of technical instruments on the hourly and daily periods signal a buy, which is justified by the rapid upward movement in the market. Minute intervals have a variable signal due to the stage of pullback-stagnation at the peak of the trend

Weekly volatility / Volatility measurement: Month; Quarter; Year

The volatility measurement reflects the average daily fluctuations, calculated per Month / Quarter / Year.

(February 11 was built taking into account the time of publication of the article)

The market dynamics is declining, but this does not prevent the inertial movement. There is an assumption that the market is thus accumulating trading volumes, possibly to something very strong

Key levels

Resistance zones: 1.3865; 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