GBP/USD - 24H.
The GBP/USD currency pair has been growing in recent weeks and months, ignoring many fundamental factors. Therefore, the downward movement that has been observed in the last week or a little more can be interpreted simply as a banal technical correction in the long term. On the 24-hour timeframe, in principle, this is visible. At the end of this week, the pound sterling also fell in price, as well as the euro currency. The reasons are the same since both pairs moved almost identically. The only difference is that the euro currency has been correcting for two full months, and the pound sterling began a correction a week ago. Although, from our point of view, the reason for the fall of the pound sterling is much more than the euro currency. But we have already drawn the attention of traders to some illogic in the movements of the pound and the "speculative" factor many times. Thus, now, after a year of strengthening the pound and five months of its recoilless growth, such trifles are no longer particularly impressive. The correction eventually began, which is good. Now, what happens next? We believe that there may now be a conflict between the "technique" and the "foundation". The fact is that in general, the "foundation" is stronger in America than in the UK, so it seems logical that the dollar will now grow. According to the "technique", it is also logical to move down by 400 points. However, if Joe Biden's "plan to save America" is approved by the US Senate, an additional $ 2 trillion will flow into the US economy, and we have previously analyzed changes in the volume of money supply, so the probability that the dollar will resume falling is high. But until the new trillions of freshly printed money start to be dropped from the helicopter, the US dollar can continue to grow.
COT report.
During the last reporting week (February 23-March 1), the GBP/USD pair fell by 140 points. Although the pound fell during the reporting week and continued to fall after it, the mood of the group of "Non-commercial" traders is becoming more "bullish". Right now, when the probability of the end of the upward trend, on the contrary, is growing. During the reporting week, non-profit traders closed 2.5 thousand contracts for buying and 8.2 thousand contracts for selling. Thus, the net position increased by about 6 thousand contracts, and the mood of the major players became more "bullish". This change is much better displayed with the help of indicators. The second indicator, which reflects just the change in the size of the net position of "Non-commercial", shows an increase in this indicator over the past five weeks. At the same time, starting from mid-December, the green and red lines of the first indicator, which displays the size of the net positions "Commercial" and "Non-commercial", are removed from each other. And this, we recall, is a sign of a strengthening trend. Thus, in general, the data of the COT report now speak not about the end of the upward trend, but its preservation and strengthening. As we said earlier, absolutely any conclusions made based on COT or foundation reports require confirmation by technical signals. Therefore, we recommend that you keep in mind the conclusion drawn from the COT reports, but at the same time remember that on the 24-hour timeframe, the pair was fixed below the Kijun-sen line, and on the lower timeframes, downward trends were formed.
During the current week, there were almost no interesting events in the UK. Only on Wednesday, Rishi Sunak, the finance minister, presented in Parliament a draft budget for 2021, which caused some concerns among UK residents and businesses. However, the fears were in vain, as Sunak assured that all those in need will continue to receive assistance from the state, at least until September of this year, when it is planned to complete the vaccination of the entire adult population of the country. Thus, the markets were able to exhale and focus on the hype topic with US Treasury bonds. The growth in yields of which is the reason for the strong strengthening of the dollar, according to the overwhelming majority of analysts and experts. It is worth noting that yesterday the yield of 10-year treasuries rose again and is already 1.566%. Jerome Powell this week said that in the future, the Fed will limit inflation in the States (if it accelerates strongly), but the regulator is not going to target bond yields. The markets interpreted this statement as a call to buy the dollar again because it was during Powell's speech that a new collapse in the pair's quotes followed. British government bond yields have also been rising in recent weeks, but no one cares about this point.
Trading plan for the week of March 8-12:
1) The pound/dollar pair has consolidated below the critical line on the 24-hour timeframe, so now the downward movement is more relevant. To identify the resumption of the upward movement, the bulls must return to the area above the Kijun-sen line. Up to this point, it is more preferable to move down and trade down.
2) Sellers have finally started to put pressure on the pound/dollar pair. In the coming weeks, the fundamental background will favor the further strengthening of the US dollar. However, when the $ 2 trillion "rescue plan for the US economy" is approved, the US currency may again be under market pressure. In any case, the dollar now has a certain respite.
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced before.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.
