29.07.202102:46 Forex Analysis & Reviews: Overview of the GBP/USD pair. July 29. The stumbling block is the "Northern Ireland Protocol"

4-hour timeframe

Technical details:

Higher linear regression channel: direction - downward.

Lower linear regression channel: direction - downward.

Moving average (20; smoothed) - upward.

CCI: 100.6746

The British pound was trading higher on Tuesday and Wednesday, recovering from the fall a week earlier. Then we said that the collapse of the British currency quotes could occur due to the growing number of cases of the "coronavirus" in the UK. At the moment, the fourth "wave" is slowing down, and the number of new cases of the disease is only 20-25 thousand per day. Of course, this is still quite a high value, given that in other European countries, the strength of the new "wave" of the pandemic is either significantly lower or it does not exist at all. Thus, if we take into account only the epidemiological factor, then the pound has been trading in the last two weeks logically. At the moment, this factor can be considered already worked out. At the same time, we draw attention to our forecast, which we have repeatedly voiced recently. We said that the pound/dollar pair would most likely fall to the area of 1.3600-1.3666, where the formation of a corrective turn against the global upward trend will end. We also said that the entire upward trend at the moment lasts no more than a couple of years. Usually, the cycles in the economy change every 8-10 years. Thus, it is quite possible to count on the fact that the depreciation of the US currency will continue in the coming years.

Moreover, all the fundamental global factors on the part of Britain no longer impact the market as in the last five years. Brexit is somehow completed. However, new problems are looming on the horizon. They are still only hypothetical and potential. Of course, the pound may return to a downward trend if, for example, Scotland holds an independence referendum, during which it turns out that the majority voted "yes." However, this referendum will not be earlier than next year. And it will be followed by a couple of years of legal proceedings between London and Edinburgh on the legality of such a referendum because London does not give official permission to hold it at the moment. And without this permission, the results of the referendum may be declared invalid. Thus, the pound remains with excellent prospects for continuing the long-term upward trend.

However, Britain still has some problems. First, the recovery of the British economy raises big questions. On the one hand, there is economic growth. On the other hand, it is quite weak, completely different from what it is in the States. Second, the figure of Boris Johnson is causing more criticism, especially after several speeches by his former chief adviser Dominic Cummings. In Britain itself, many people already compare Johnson with the odious Donald Trump and believe that the Briton adopted all the Americans' methods. We all remember very well how the "Trump era" ended. Therefore, the chair under Boris Johnson is not swinging yet, but criticism of him is pouring out regularly. Third, Brexit and the coronavirus pandemic have dealt a double blow to the British economy. And the British government, according to many authoritative publications, is trying to disguise the consequences of the "first step into a bright future" under the consequences of the pandemic. After all, when Brexit was just being conceived, and then during its implementation, Johnson repeatedly said that the consequences of Brexit would not be as terrible as the media portray them. Now his government has an iron-clad excuse – the pandemic is to blame for everything. The fact that the British economy has shrunk much more during this period than the economy of the EU or any of its countries is not taken into account.

By the way, the issue of Brexit is not closed yet. All the necessary documents, contracts, and agreements have been signed, but London violates these documents and wants to revise some. The fact that the agreement is at least a bilateral deal does not interest Johnson too much. Britain wants to significantly rework the "Northern Ireland Protocol" to prevent any manifestations of customs or borders between Britain and Northern Ireland. Or between Northern Ireland and Ireland. However, the current agreement implies that there are customs offices. They are located not on the island of Ireland (so as not to excite the locals once again), but in the Irish Sea, in numerous ports. Thus, at this time, there are big problems with the transportation of certain goods from Britain to the island of Ireland. Supply disruptions and shortages of some goods. The European Union flatly refused to revise the "Northern Ireland protocol" in full, but they made proposals to London about revising some of its points from time to time. For example, the last sentence concerned medical products.

Brussels has expressed its readiness to allow all necessary checks of medical products to be carried out in Britain. However, only if it is guaranteed that these goods will be sent only to Northern Ireland and will not enter the European market in the future. London responded to this proposal by saying that the proposed solutions do not solve the whole problem but only correct certain aspects. Boris Johnson himself recently said that the "Northern Ireland protocol" cannot continue to work in its current form. However, the President of the European Commission, Ursula von der Leyen, said that she was not ready to start new negotiations, expressing her readiness to seek solutions within the framework of existing agreements. Thus, we can potentially get new lengthy negotiations or disputes on this issue. Of course, now it is impossible to assume how everything will end. However, such a confrontation against the background of other potential problems of the Kingdom does not bode well for Britain. The pound is still more responsive to fundamental global factors, but the global factor will be leveled when the Fed completes its quantitative stimulus program. And then, other factors will come to the fore, including political, geopolitical, and economical.

The average volatility of the GBP/USD pair is currently 97 points per day. For the pound/dollar pair, this value is "high." On Wednesday, July 29, we expect movement inside the channel, limited by the levels of 1.3782 and 1.3977. A reversal of the Heiken Ashi indicator back to the top will signal the resumption of the upward movement.

Nearest support levels:

S1 – 1.3855

S2 – 1.3794

S3 – 1.3733

Nearest resistance levels:

R1 – 1.3916

R2 – 1.3977

R3 – 1.4038

Trading recommendations:

The GBP/USD pair continues to be located above the moving average on the 4-hour timeframe. Thus, today, we should consider new purchases with targets of 1.3916 and 1.3977 after the reversal of the Heiken Ashi indicator upward. Sell orders should be considered if the price is fixed below the moving average with targets of 1.3733 and 1.3672, and keep them open until the Heiken Ashi turns up.