Long term outlook

The GBP/USD pair failed to start the upward movement again. The pound was rising, but in fact, it only managed to test the upper boundary of the sideways channel, which can be seen on the 4-hour and hourly charts. Unfortunately, this channel does not have any distinct boundaries. We can only assume that they pass through 1.3489 and 1.3643. The channel is not narrow, so it is quite difficult to predict the price movements inside this channel. The problem is that the price may move several days from one boundary to the other. Nevertheless, the price rebounded from the upper boundary of the channel on Friday, so we expect the pound to fall next week. There are no special reasons for the pound to move according to the trend right now. The euro is also trading in a flat, and there is no important information to be released in the UK this week, which might contribute to a different movement of the pound/dollar pair. The markets are under the impression of the geopolitical events of the last weeks and are refraining from making trading decisions. Consequently, the pound, as well as the euro, may trade unpredictably for some time. If a panic bursts in the market, which cannot be excluded completely, then the movements can not be predicted at all. We can see that markets react to the situation in Ukraine to a certain extent. For example, US stock indices are falling, bitcoin and other cryptocurrencies are getting cheaper. These are the riskiest assets, so investors get rid of them first in turbulent periods. The currency market is waiting for official decisions to be made in the highest political circles.

COT report analysis

The latest COT report on the pound showed a stronger bullish sentiment among professional traders. For the first time in several months, the number of buy contracts in the "Non-commercial" group exceeded the number of sell contracts, so we can assume that the annual downtrend is over. The situation with the COT reports on the pound is very similar to the euro. The big players there also increase the purchases, but at the same time, the euro continues to be very close to its low for the year, and in fact, it's not growing. The pound shows a smaller drop against the dollar and grows more confidently. At the moment, it is much farther away from its yearly lows, so we think that if there is a new fall, the pound may fall less than the euro. If there is a new rise, the pound may rise more than the euro. This can be explained by the fact that the ECB simply refuses to raise its key rate in 2022, while the Bank of England has already raised its rate twice. Thus, due to this discrepancy in the rates on tightening of monetary policy, the pound takes a more favorable position in comparison with the euro. Moreover, non-commercial traders on the pound were bearish just recently, which is eloquently demonstrated by the green line in the first indicator or the second indicator in the picture above. However, over the last couple of months, these traders have become much more bullish.

Fundamental events analysis

The fundamental background for the GBP/USD pair this week was of medium strength. However, the markets are sitting on the fence in alert mode. In other words, they feared an escalation of military conflict in the East of Europe, so all macroeconomic data was ignored. In the UK this week, it became known that average wages rose more than expected and the unemployment rate was unchanged. Also, there was an inflation report which showed its faster growth compared to the forecasts. So, the pound had a reason to grow this week. However, the situation is very unstable now because of geopolitics, so the interpretation of the fundamental background may be unpredictable next week. Much will depend on the Ukrainian-Russian conflict, which may pull so many strings that lead to Europe and the West that the situation may worsen not only in Ukraine or Russia.

Trading plan for February 21 - 25:

1) The GBP/USD pair is ignoring technical indicators at the moment. During the last couple of weeks, the price has broken through the Kijun-Sen line on the daily chart, but it has not managed to bear fruit yet. That is why there is no conclusion as to what price movement we should expect. The fundamental background is ambiguous and the situation may change rapidly.

2) The same refers to the prospects of the downward movement. At the moment, the pair is near the Kijun-Sen line in the sideways channel, so it is impossible to make any conclusion now. If the pair manages to break out of this channel, then it will be possible to talk about a trend movement again. However, the question is, through which boundary the breakout will be made.

Explanations to pictures:

Price levels of support and resistance, Fibonacci levels - levels, which are the targets for the opening of purchases or sales. Take-profit orders can be placed near them.

Ichimoku indicator (standard settings), Bollinger Bands (standard settings), MACD(5, 34, 5).

Indicator 1 on the COT charts - the size of the net position of each category of traders.

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