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The pound/dollar currency pair has been showing low volatility for the fourth day in a row, having not just an indecisive upward move, but a certain detachment from the dynamics of the entire market. So what is the reason for such indecisive hesitation, we will analyze this question in our article.
From technical analysis (TA), we see that the process of pseudo-recovery concerning the inertial course is postponed indefinitely. After the quote touched the range level of 1.2770 (1.2750/1.2770/1.2800), there was a slowdown followed by a rebound, returning us almost to the resistance level (1.3000), which is where it all started. In this confusing denouement, I was interested in one noteworthy point, and so, pay attention to the fluctuation of the quote in the period from October 21 to October 30. What you see, apart from a small rollback, is correct, distinct indecision in the plan of action. So, indecision, in this case, is a kind of reflection of two phenomena at once, which leads to such an ambiguous course of the market.
In terms of volatility, we have the lowest mark in four trading days (58 – 65 – 97 – 62 point), which reflects the slowdown (indecision) and at the same time signals the possible preparation of the market for the next jump.
Analyzing hourly last day, we see a swing in the conditional framework of 1.2860/1.2904, were the most remarkable candle at 20:00 (time on the trading terminal), which reflects the local surge against the background of the results of the Fed meeting. An interesting point is that the market did not manage to overcome the mark of 1.2904 in terms of price-fixing at the end of the day.
As discussed in the previous review, traders are divided into several categories: 1) Waiting for the recovery of the main move relative to the inertial movement. Short positions have been laid at the time of working out the psychological level of 1.3000, having a conservative method of capital management, with quite long stops (stop loss); 2) Speculators who worked on the outcome of the Fed meeting and perhaps some still managed to jump into this small momentum prices; 3) Ordinary traders considered the entry relative to the framework of 1.2800 (-50p.) and 1.2880 (+40p.), which did not happen yesterday.
Looking at the trading chart in general terms (daily period), we see that the price is extremely close to the psychological level of 1.3000, which means that the recovery stage is under threat. At the moment, special attention is paid to the values of 1.2770 and 1.3000, since major decisions will be made regarding them. At the same time, in the form of a theory, we consider a hang in these values (1.2770/1.3000), having lateral fluctuations as a result, but this will reflect the growing uncertainty in the market.
The news background of the last day contained a package of important statistics for the United States. So, the first estimate of GDP for the third quarter was published, where expectations coincided in terms of a further slowdown in economic growth from 2.3% to 2.0%. At the same time, the ADP report on the level of employment in the US private sector was released, where they expected an increase of 120 thousand but received even more interesting indicators. So, employment growth was not 120 thousand, and 125 thousand, and the previous figures revised for the worse – 135 thousand to 93 thousand.
The market reaction to the statistics was almost imperceptible, thus it was clear that everyone was waiting for a slightly different event.
As you may have guessed, the key event of the last day was the outcome of the meeting of the US Federal Open Market Committee, where the expectations without exception of all analytical agencies coincided in terms of further reduction of the refinancing rate (from 2.0% to 1.75%). The most important point in the event was the subsequent press conference, where Jerome Powell expressed the need for ongoing regulatory action to help keep the US economy strong in the face of global change. Further actions of the Fed will again depend on the level of inflation and its approximation to the target level of 2%, as well as on external factors.
At the same time, the head of the Fed did not lose sight of such a burning topic as Brexit, saying that the risk of Britain leaving the European Union without a deal has significantly decreased.
"I would say that it appears that the risk of a no-deal Brexit appears to have decreased substantially. I think in any case, there are quite a lot of risks, but I have to say that the risks seem to have eased," Jerome Powell said.
By tradition, we conclude our column of information and news background with an excursion from the United Kingdom.
So, early parliamentary elections in Britain can be said to be approved on December 12. On Tuesday, the Lower House approved the bill for early elections, and on Wednesday, it was approved by the Upper House, leaving only the formal signing of the bill by Queen Elizabeth II.
Now comes the battle of politicians, where the leader of the opposition Labor Party, Jeremy Corbyn, intends to clean up the "corrupt system" at the root.
"These elections are a unique chance to transform our country, to take on key interests, supporting the people and not leaving anyone behind," Jeremy Corbyn said.
Naturally, against such a background, slogans calling for a vote were already showered.
"When the Laborites win, the nurse wins, the pensioner wins, the student wins, the office worker wins, the engineer wins," Corbyn says, according to the excerpts. "We all win."
Let's sum up in terms of market reaction to such a saturated background. The pound/dollar pair still showed local upward interest with a little more than 60 points of primary growth, which cannot be said about its counterpart in the euro/dollar market, which behaved more actively, but this is a different story and you can familiarize yourself with it.
Today, in terms of the economic calendar, we had only data on applications for unemployment benefits in the United States, where there is their growth: Primary applications +5 thousand; Repeated +7 thousand.
Further development
Analyzing the current trading chart, we see how the quote is getting closer to the psychological level of 1.3000 as if signaling to us that soon everything will resume again in terms of an inertial-emotional upward move. I would not be so critical in such high-profile statements, and who knows, FOMO sometimes works wonders with the market quote. Of course, it is not necessary to hurry and it is better to see a distinct price fixation higher than 1.3000 while maintaining the inertial course since the tightening of the quotation into a lateral oscillation of 1.2770/1.3000 is also one of the theories that we are considering.
In terms of volatility, there is still restraint, but there are also prerequisites for acceleration. So, in terms of considering the daily candle, there are prerequisites for the formation of a candle model "Marubozu", which can give the current movement expressed in acceleration. We follow the current day, as confirmation of the formation of "Marubozu" is still incomplete.
Detailing the available movement per minute, we see that from the very beginning of the trading day (00:00 hours) the movement is steadily ascending, has an average hourly candle in the area of 7 points.
In turn, traders who have opened their trading positions relative to the framework of 1.2800 (-50p.) and 1.2880 (+40p.), are already in the black, which may not please. The exit from these transactions is planned near the psychological level of 1.3000.
It is possible to assume that on the hype the quote will still be able to get closer to the psychological level of 1.3000, but whether we go further, that's the question. The first thing that is seen is a rebound from the level of 1.3000, unless, of course, at the time of approaching the level of 1.3000, market participants will not cover FOMO (lost profits syndrome), then, in this case, we can expect everything.
Based on the above information, we derive trading recommendations:
Indicator analysis
Analyzing a different sector of timeframes (TF), we see that indicators at all major time intervals signal an upward interest, which in this case reflects the reality.
Volatility per week / Measurement of volatility: Month; Quarter; Year.
Measurement of volatility reflects the average daily fluctuation, calculated for the Month / Quarter / Year.
(October 31 was built taking into account the time of publication of the article)
The volatility of the current time is 75 points, which is quite good but still below the daily average. Now the question is raised, if the psychological level of 1.3000 plays the role of resistance again, then the volatility will be limited and we will not be able to overcome the daily average. If the level of 1.3000 nevertheless falls, then the probability of accelerating volatility will increase adversely.
Key levels
Resistance zones: 1.3000; 1.3170**; 1.3300**.
Support zones: 1.2770**; 1.2700*; 1.2620; 1.2580*; 1.2500**; 1.2350**; 1.2205(+/-10p)*; 1.2150**; 1.2000***; 1.1700; 1.1475**.
* Periodic level
** Range level
*** The article is based on the principle of conducting transactions, with daily adjustments.
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