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MT5.com - GBP / USD analysis 16/09/2020; the Pound takes a breather: the meetings of the Bank of England and the Federal Reserve can greatly affect the current market mood

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Forex Analysis:::2020-09-16

GBP / USD analysis 16/09/2020; the Pound takes a breather: the meetings of the Bank of England and the Federal Reserve can greatly affect the current market mood

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The construction of a new downward section of the trend continues. The departure of quotes from the reached lows suggests that the markets are ready to build wave 2 as part of this section. Thus, the increase in quotations may continue in the area of 32 and 33 figures since the decline in wave 1 was quite strong. As in the case of the Euro, the news background is now of great importance for the British. If the flow of disappointing news resumes from the UK, the demand for the British dollar may fall again which will lead to a resumption of the decline in the instrument's quotes.

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During the last trading day, the GBP/USD instrument gained about 40 basis points and another 90 today thus, presumably, completed the construction of wave 1 or A as part of a new downward trend section. If this assumption is correct, then the price increase will continue within wave 2 or B with targets located near the 30 figure or higher. Even if the section of the trend that begins on September 1 takes a three-wave form, we should witness another wave down. I believe that this scenario is a working option for the time being.

The news background from the UK remains negative though there was no news over the past trading day. Therefore, the Pound-Dollar quotes began to move away from the previously reached lows. The UK Parliament passed a bill in the second reading that implies a violation of agreements with the European Union on Northern Ireland but it remains unclear whether the British government will violate these very agreements or simply created a legislative permission for this. After all, it is no secret that if the Protocol on Northern Ireland is violated, it will be a huge reputational blow to Britain. Who would want to enter into agreements with a country that does not respect international law? Thus, before violating the agreement with the EU, Boris Johnson must fully understand the consequences that he and his country might face. The European Union has already warned that it may take legal action if the agreements are violated while other countries, such as the United States, have also said that confidence in the UK will be severely damaged. This was also stated by former British Prime Ministers (Tony Blair, Theresa may). Even some of Johnson's party members expressed their disagreement with this bill. It should also be noted that the law has not yet been adopted definitively, but only "pre-approved". At this time, the members of parliament took the time to make adjustments to the bill "on the internal market of great Britain", so the Pound received little market support.

General conclusions and recommendations:

The Pound-Dollar instrument has presumably completed the construction of the upward wave Z and the entire upward trend section. However, there is now a high probability of building a correction wave 2 or B. If you look only at the wave picture, I would say that now the instrument has a good opportunity to return to the level of 1.3013 which corresponds to 38.2% Fibonacci, after which it is likely to resume the decline in quotes. Thus, I recommend waiting for the end of the correction wave and then resume selling the British Pound.

Chin Zhao
Analyst InstaForex
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