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The price of the pound sterling continues to rise, where even the psychological level of 1.4000 is not able to contain persistent speculators. The volume of long positions is growing, and discrepancies with common sense have a gap, the size of the Mariana Trench.
Countless economic problems are enveloping the United Kingdom, but traders seem to ignore or refuse to talk about them. Speculators are clinging to the news of the success of the vaccine and the possibility of easing restrictive measures as if this step will lead to a lightning effect in terms of economic recovery.
The effect of mass vaccination and easing restrictive measures should come, but not in the short term. In analytical reviews devoted to the economic problems of the UK, I have repeatedly pointed out the effect of the market's delay in reaction to real facts. The speculative mood that is currently taking place in the future can quickly change its polarity when the complex of economic problems can no longer be hidden.
This moment may come as soon as possible, with the onset of spring.
Today, we received another confirmation of our arguments regarding economic problems as retail sales in the UK fell twice as much as expected in January, and this is the effect of the latest national quarantine.
Recall that the national lockdown affected everyone's favorite pre-holiday sales and post-holiday discounts, where most stores were closed for nothing.
In-store and online store sales dropped 8.2% after slightly rising in December, one of the worst since the fall lockdown, where the decline was 18%.
According to the UK Retail Consortium, the three UK lockdowns cost the industry £22 billion ($31 billion) in lost sales.
Moreover, according to the New West End Company, a fifth of the shops in London's Oxford Street shopping center are closed and probably won't reopen after the lockdown ends.
Retail chains across all sectors saw a monthly decline in sales in January 2021, excluding non-stationary retail chains and grocery stores.
Prime Minister Boris Johnson hopes the rapid vaccination program will allow shops, restaurants, and bars to reopen by summer, boosting employment and attracting new customers. Analysis by McKinsey & Co. showed that consumers can stick with e-commerce, keeping that part of the industry at 50-75% of the peak they enjoyed during the pandemic.
"The positive tailwinds of vaccination introductions are countered by very strong headwinds of unemployment, the threat of inflation, and the difficulties many face in meeting their daily living expenses, all of which are serious challenges that can weaken consumer confidence," said Joe Staton, director of customer strategy at GfK.
Once again, we have a signal of big economic problems, which speculators refuse to notice so far, but time will tell, and let's hope that denial of reality will not lead to a new market crash.
What happens on the trading chart?
At the beginning of the trading week, the quotes approached the area of the psychological level 1.4000 (1.3950 /1.4000/1.4050), where market participants initially felt pressure, but based on current price fluctuations, it is clear that the volume of long positions at times prevails over the volume of short positions.
The situation is not easy, you should act outside the box since fundamental and technical analysis by all possible methods signals a reversal.
The work is carried out taking into account a narrow perspective of a speculative mood, where they dream of the best, being in a debt hole.
Expectations and prospects
I can write a lot about the correctional course and economic problems, but speculators rule the market, if you plan to make money on it, you should follow them.
The tactics are short-term and are adjusted based on information noise and current quotes. That is, the expectation of easing restrictive measures is a growth stimulus from the point of view of speculation. At the same time, movement within the boundaries of the psychological level 1.4000 (1.3950/1.4000/1.4050) is also a kind of tactic, since keeping the price outside one or another border of 1.3950/1.4050 can lead to the local move towards the hold.
It is worth considering that the recommendations described above have their own risks, for which they are speculative expectations. If we proceed from common sense, then the market will very soon experience at least a full-size correction due to pressing economic problems, as well as a high level of overbought sterling.
What is happening in the market in terms of indicator analysis and market dynamics?
Analyzing different sectors of time frames, we see that technical instruments follow an upward inertial move, giving a buy signal. It is worth considering that in the case of amplitude fluctuations along the area of the psychological level, minute intervals can have a variable signal
In terms of market dynamics, the first in a long time acceleration of volatility in the past day is recorded - 145 points, which is 33% higher than the average level. This signal indicates that speculators, as before, are actively operating in the market and we should expect new price impulses
Key levels
Resistance zones: 1.4000 ***; 1.4350 **; 1.4550; 1.4700; 1.5000 ***.
Support Zones: 1.4000 ***; 1.3750 **; 1.3650 **; 1.3300; 1.3000 ***; 1.2840 / 1.2860 / 1.2885; 1.2770 **.
* Periodic level
** Range level
*** Psychological level
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