Analysis of GBP/USD 5M

GBP/USD fell by 80 pips on Wednesday, which is quite significant. Recall that we previously questioned the US dollar's sharp decline and suggested that it will start a new upward movement. So far, everything is going according to plan, even though we did not expect another bullish correction. However, the US has been releasing disappointing economic reports, leading to an unplanned bearish pivot for the US currency. Yesterday, the UK released the inflation report for October, and its value turned out to be even lower than forecasts, against expectations of a decline to 2%. As a result, the market had no choice but to sell the pound, but on Tuesday, it started a dollar selloff due to the US inflation report.

Speaking of trading signals, there were only two of those on Wednesday. Initially, the pair surpassed the 1.2429-1.2445 range, then it bounced from the bottom of this area. Traders could not expect substantial profits as the downward movement was already coming to an end. However, investors couldn't incur losses on the trade since none of the signals closed at the stop-loss, and no counter-signal for buying was formed.

COT report:

COT reports on the British pound also align perfectly with what's happening in the market. According to the latest report on GBP/USD, the non-commercial group closed 3,400 long positions and 1,700 short ones. Thus, the net position of non-commercial traders decreased by another 1,700 contracts in a week. The net position indicator has been steadily rising over the past 12 months, but it has been firmly decreasing over the past three months. The British pound is also losing ground. We have been waiting for many months for the sterling to reverse downwards. Perhaps GBP/USD is at the very beginning of a prolonged downtrend. At least in the coming months, we do not see significant prospects for the pound to rise, and even if we're currently witnessing a corrective phase, it could persist for several months.

The British pound has surged by a total of 2,800 pips from its absolute lows reached last year, which is an enormous increase. Without a strong downward correction, a further upward trend would be entirely illogical (if it is even planned). We don't rule out an extension of an uptrend. We simply believe that a substantial correction is needed first, and then we should assess the factors supporting the US dollar and the British pound. A correction to the level of 1.1844 would be enough to establish a fair balance between the two currencies. The non-commercial group currently holds a total of 63,700 longs and 85,800 shorts. The bears have been holding the upper hand in recent months, and we believe this trend will continue in the near future.

Analysis of GBP/USD 1H

On the 1H chart, GBP/USD has started another corrective phase. If it weren't for another crucial US report that turned out to be weak, we wouldn't see a new phase. But this is precisely the case where the macroeconomic background has a very strong impact on the technical picture. There's nothing we can do about it. Anyway, we still expect a downtrend in the medium-term.

As of November 16, we highlight the following important levels: 1.1927-1.1965, 1.2052, 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2693, 1.2786. The Senkou Span B (1.2257) and Kijun-sen (1.2345) lines can also be sources of signals. Signals can be "bounces" and "breakouts" of these levels and lines. It is recommended to set the Stop Loss level to break-even when the price moves in the right direction by 20 pips. The Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. The illustration also includes support and resistance levels that can be used to lock in profits from trades.

There is no UK economic data scheduled in the calendar on Thursday. The US will release data on industrial output and initial jobless claims. Both are minor reports, so we don't expect significant movements today. Most likely, the pound will lean towards a systematic decline.

Description of the chart:

Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;

The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;

Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals;

Yellow lines are trend lines, trend channels, and any other technical patterns;

Indicator 1 on the COT charts is the net position size for each category of traders;

Indicator 2 on the COT charts is the net position size for the Non-commercial group.