Brexit in the week from 11/5 – 17/5/2020

Technical analysis as at May 17, 2020

Last week, the pound weakened continuously by a total of 340 pips and closed at 1.2102. The pound broke through the support band in the area around 1.2160. Overall, the pound is still in a downtrend, which is confirmed by the declining trend line between points A, B, and C. At the same time, the support line between points D and E was broken, creating a new lower low below point E, see Figure 1. 

Figure 1: The GBPUSD on a weekly chart

On the daily chart, see Figure 2, we can see that at a point G, the moving average EMA 50 fell below SMA 100, which confirms the declining trend. The price has oscillated around the EMA 50 average for the last 3 weeks. As the price broke through the support and closed below it last week, it seems that another target for the price could be to close the hidden gap that was created on the candle on March 26, 2020.

Last time we showed a hypothetical example of short speculation with a volume of 0.01 lot with an entry price at 1.25 and a target price at 1.2170. This profit target was reached last week and the trader could receive a profit of EUR 30. 
 

Figure 2: The GBPUSD on a daily chart

 

The key levels of support and resistance are as follows:

 

Resistance 1 is at the level of 1.2170-1.2230.
Resistance 2 is in the zone 1.2410 - 1.2476. At the same time, it is EMA 50 moving average around which the price has recently fluctuated.
Resistance 3 is in the range of 1.2620 - 1.2650.

Support 1 is located in the range of 1.1980 - 1.2000. Here is the bottom edge of the hidden gap formed on the candlestick on March 26, 2020.
Support 2 is in the range around level 1.1400 - 1.1470.
 

 

 

COT Report

Additionally, we present the overall sentiment of the market according to the report COT (Commitment of Traders), which is presented every Friday and which brings the following information:
 

COT report
 

Instrument	Data as at 15/5/2020	Data as at 8/5/2020	Data as at 1/5/2020	Data as at  24/4/2020	Data as at  17/4/2020	Sentiment
British pound	-12 000	-6 700	-1 400	3200	3700	Strong bearish
USD index	16 400	16 100	15 600	15 400	15 000	Strong bullish

 

Last week, big speculators again reduced their overall net position on the British pound. This is the tenth decline in a row, so the bearish sentiment prevails on the pound. Speculators, on the other hand, strengthened their overall net position on the US dollar again for the eighth week in a row, which, despite poor macroeconomic data in the US, confirms that the dollar serves as a strong reserve currency in times of crisis.

 

What awaits us this week?

From macroeconomic data, Britain will report important labor market data on Tuesday. On Wednesday, a set of data on inflation will be released and on Thursday, information on the further development of the PMI Purchasing Managers' Index will be published. On Friday, the results of retail sales for April will be reported, where a sharp decline is generally expected, which can already be priced in the value of the pound.

In addition, further developments in the spread of the coronavirus disease and the measures taken in this regard need to be monitored on an ongoing basis.