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23.07.202103:04 Forex Analysis & Reviews: Overview of the GBP/USD pair. July 23. The fourth "wave" of the pandemic in the UK is not weakening.

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4-hour timeframe

Exchange Rates 23.07.2021 analysis

Technical details:

Higher linear regression channel: direction - downward.

Lower linear regression channel: direction - downward.

Moving average (20; smoothed) - sideways.

CCI: 62.7228

The British pound continued its relatively strong upward movement on Thursday, July 22. It cannot be said that this movement is based on anything specific. Recall that a little earlier, the British currency fell by 250 points, and the most logical reason was the increase in the number of cases of the "coronavirus" in the UK. The increase in the number of cases of the disease is very serious, and there is now a full-fledged fourth "wave" in the UK. However, the markets usually react to macroeconomic indicators and long-term prospects. And not to the epidemiological situation, which currently has no negative impact on the economy.

On the contrary, on Monday, July 19, all quarantine restrictions were lifted. According to the logic of things, the economy should continue to recover, and not vice versa. Nevertheless, the pound has fallen, and its current growth looks like recovery after a not quite logical and justified fall. The markets seem to recognize that they made a mistake and are now leveling it. We have also repeatedly said that the pound might fall to the area of 1.3600-1.3666 within the framework of the global correction scenario, from which a new upward trend may begin to form. At the moment, our forecast is 100% fulfilled. It was in the area of 1.3600-1.3666 that the pound/dollar pair eventually fell. We also said earlier that after an unsuccessful attempt to overcome the level of 1.4240, which is a three-year high, buyers could temporarily retreat from the market to "take acceleration" before a new attempt to overcome this level. The long-term prospects of the pound/dollar pair remain upward. Thus, we are waiting for the pair to return to the level of 1.4240 in almost any case.

Meanwhile, everyone who has already opened champagne about the possible end of the fourth "wave" of the pandemic in the UK can close it back. From the maximum number of diseases per day in 54 thousand, the indicator slightly rolled down. On July 21, 44 thousand new cases of infection were recorded, which is not much less than 54 thousand. Thus, it is not even possible to conclude that the pandemic is beginning to recede. Consequently, the situation may still worsen, although about 70% of the UK's adult population has already received both doses of the vaccine. The British government continues to be mercilessly criticized, but at the same time, meets all critics with low mortality rates. However, this can hardly console the British people. Since there are still human losses behind any "low mortality rates." In the last few days, about 100 people have been steadily dying from the "coronavirus." Of course, this figure is very low on the scale of the 66-million state, but many Britons are dissatisfied with the fact that the quarantine has been completely canceled when another "wave" of the epidemic is raging in the country. Many supermarkets and establishments with a large crowd of people continue to require a mask regime and social distancing from their visitors. Thus, the epidemiological situation in the UK remains very ambiguous.

At the same time, his former chief adviser Dominic Cummings made a new batch of accusations against Boris Johnson. Cummings once again stated that Boris Johnson refused to take the virus seriously for a long time during the first "waves" of the pandemic and introduced quarantine on the country's territory. Cummings also almost openly stated that the Prime Minister wanted to neglect the lives of elderly Britons since they were the most vulnerable group. "Johnson was hoping that something would work out and the problem would be solved by itself. The phrase expressed his attitude to what was happening, that all this is nonsense, "lockdowns" will not work, and the opinion that people who are over 80 are dying. According to the Prime Minister, it is impossible to kill the economy just because the elderly are dying," Cummings said. In addition, Cummings noted that Boris Johnson became Prime Minister almost by accident, simply because there were simply no other suitable candidates at that time. Therefore, the Conservative Party chose his candidacy, which it regretted in the next few months after Johnson's election victory. "He does not have and does not have any plan. He does not know how to be a prime minister, how to lead the country. We made a bet on him because we needed to solve a certain problem, and not because we believed that he was suitable for running the country," said a former adviser to Boris Johnson.

Thus, a political crisis is brewing in the UK again. Recall that this is not the first statement of this kind from Cummings. A few weeks ago, the former adviser already gave an extensive interview in which he directly accused the British authorities of negligence and mass mistakes during the outbreak of the pandemic in 2020, thanks to which the country had the highest morbidity and mortality from the "coronavirus" among all EU countries. Thus, the clouds are gathering over Boris Johnson, and his future at the head of state is by no means unambiguous. As for the prospects of the British pound, theoretically, a new political crisis or an increase in the current "wave" of the pandemic can cause a new depreciation against the US currency. But we still believe that the factor of injecting trillions of dollars into the US economy will outweigh all other factors, and the US currency will resume its long-term decline.

Exchange Rates 23.07.2021 analysis

The average volatility of the GBP/USD pair is currently 113 points per day. For the pound/dollar pair, this value is "high." On Friday, July 23, we expect movement inside the channel, limited by the levels of 1.3655 and 1.3881. A reversal of the Heiken Ashi indicator back down signals a possible resumption of the downward movement.

Nearest support levels:

S1 – 1.3733

S2 – 1.3672

S3 – 1.3611

Nearest resistance levels:

R1 – 1.3794

R2 – 1.3855

R3 – 1.3916

Trading recommendations:

The GBP/USD pair was fixed above the moving average on the 4-hour timeframe. Thus, today you should stay in purchases with the targets of 1.3794 and 1.3855 until the Heiken Ashi indicator turns down. Sell orders should be considered if the price is fixed below the moving average with targets of 1.3672 and 1.3611, and keep them open until the Heiken Ashi turns up.

Paolo Greco
Analytical expert of InstaForex
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