Brexit in the week from 20/4 – 26/4/2020

Technical analysis as at April 26, 2020

Last week, the pound moved in the 250 pips band and ended the week at 1.2364 when it closed below the closing price of the previous week. Overall, the pound is in a declining trend, which is confirmed by a trend line between points A, B, and C. At the same time, the support line between points D and E was broken and a new lower low was created 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 the price continued to decline after breaking the rising line, which is determined by HI points. The reader can also see this pair on the 4H chart, where he will see that the moving average EMA 50 fell below SMA 100 last week, which is another confirmation of the downtrend. The upper border of the current declining trend is defined by the trend line between the FJ points.

If a long bearish candlestick, which would close below 1.2240, was formed on the daily chart on Monday, a continuing bear formation so-called Falling three methods would occur, and the decline in the GBPUSD might continue especially after breaking support 1. 
 

Figure 2: The GBPUSD on a daily chart
 

The key levels of support and resistances are as follows:
 

Resistance 1 is at the level of 1.2480 - 1.2520. Here, there is a monthly Fibo 61.8% of the FH movement that occurred in March. At the same time, 1.2500 is a psychological level.
Resistance 2 is at the level of 1.2620-1.2650. It's a swing at a point J.
Resistance 3 is in the zone 1.2700 - 1.2750.

Support 1 is located in the range of 1.2150 - 1.2230.
Support 2 is in the range around the level of 1.1980 - 1.2000. Here, there is a low border of the hidden gap on the candlestick formed on March 26, 2020.
Support 3 is around the zone 1.1400 - 1.1470.

Since the market as a whole is in a downtrend, it seems more appropriate to look for trades in the short direction near resistance levels, where it is then appropriate to wait for a confirmation. Last time we showed a hypothetical example of short speculation with a volume of 0.01 lot with an entry at a price of 1.25. With a target price of 1.2170, the transaction would bring a profit of CZK 820. The stop loss would be above the last high, which is 1.2653. In monetary terms, the trader would risk CZK 380. The target price has not been reached yet, we'll see if it happens this week.

 

COT report

In addition, we present the overall market sentiment, which according to the COT (Commitment of Traders) report, which is presented every Friday, shows the following data:
 

COT report

Instrument	Data 24/4/2020	Data 17/4/2020	Data 10/4/2020	Data 3/4/2020	Data  27/3/2020	Sentiment
The British pound	-1,400	3,200	3,700	5,000	10,900	Bearish
The USD index	15,600	15,400	15,000	14,100	12,500	Strong bullish

Last week, large speculators again reduced the overall position on the British pound. This is the seventh decline in a row and for the first time since January 6, 2020, the overall net position is negative, so bearish sentiment prevails on the pound. Speculators, on the other hand, strengthened their overall net position on the US dollar for the fifth 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?

Prime Minister Johnson is returning to office. His statements on a possible extension of the Brexit transition period will be closely monitored. The next rounds of negotiations on a trade agreement between the EU and Britain are then tentatively scheduled for May 11 and June 1.

An auction of 10-year bonds will take place in Britain this week on Tuesday. Bond yields have been falling steadily since January, reflecting continuing uncertainty about the future development of the British economy. Consumer confidence and the Nationwide House Price index will be reported on Thursday. PMIs in production will be reported on Friday.

In the USA, data on consumer confidence will be reported on Tuesday. GDP for 1Q 2020 will be reported on Wednesday, and a Fed meeting, where interest rates will be decided, will happen on the same day. 

Further development of claims for unemployment benefits will be reported on Thursday. Major companies such as Apple, Facebook, Google, Exxon, Shell and others will report results this week as well. If the data is bad, the US dollar as the world's reserve currency might benefit from that. 

In addition, there is a need to continuously monitor the further development of the spread of coronavirus disease and the measures taken in this regard.