Analysis of GBP/USD 5M.
On Tuesday, the GBP/USD currency pair managed to increase by 110 points throughout the trading session before losing those 110 points. Since there were no events scheduled for yesterday, no fundamental or macroeconomic factors could have caused such strong movements. Consequently, between 80 and 90 percent of the changes were only technical. The British pound (as well as the crucial euro currency) overcame the declining trend line on the hourly TF, thus there is a significant possibility that it will go upward soon. But we don't think the medium-term decline in the value of the pound will stop there. Most likely, the market is entering a phase of consolidation or "swing," during which there will be no trend and frequent changes in the direction of movement. This will stand out, particularly in the 4-hour and daily time frames. Naturally, if the BA or the Fed's language changes, anything could change. But everyone knows what to anticipate from the Fed, and the Bank of England provides too few comments on potential changes in monetary policy.
On Tuesday, the 5-minute TF provided a large number of trade signals, but many of them were duplicates. Let's solve the problem. A rise to the Senkou Span B line and a rebound from it were caused by the pair's initial bounce off the Kijun-sen line. The long position generated a profit of 35 points. Although the price bounced off of Senkou Span B, it was a false sell signal, and the price then steadied above the level of 1.2106. As a result, a short position suffered a loss of around 40 points. The price painfully doubled up 20 points after the buy signal was repeated twice, which was sufficient to put a stop loss at breakeven. Any further signals close to the level of 1.2106 shouldn't have been eliminated. Although the final sell signal was strong and profitable, it was established too late. As a result, traders faced a high probability of ending the day with a loss.
The COT Report
There hasn't been a COT report on the British pound in a month. The report for January 31 was released a month ago, although it was only made public on Friday. There were not many modifications as reported. The non-commercial group opened 1,400 buy contracts and closed 4,100 sell contracts throughout the week. As a result, non-commercial traders' net position has increased by over 10,000. The net position indicator has been rising consistently over the past few months, but the main players' outlook is still "bearish," and even though the pound sterling is strengthening compared to the US dollar (over the medium term), it is quite challenging to determine the fundamental reasons for this. We utterly do not rule out the possibility that the pound will decline in the foreseeable future. Although it has officially started, thus far it appears to be flat. It should be noticed that both major pairs are now moving quite similarly, but that the net position for the euro is positive and even suggests that the upward momentum may be set to end, while the net position for the pound is negative. Currently, the category "Non-commercial" has 36 thousand contracts for purchase and 54 thousand of contracts for sale. As we can see, the difference is still pretty significant. Although there are technical reasons for this, geopolitics do not support such a significant and rapid rise of the pound sterling, thus we remain doubtful about the currency's long-term growth.
Analysis of the GBP/USD 1H.
The pound/dollar pair has recently been on a "swing" on the hourly timeframe. This is apparent even on the hourly TF, not to mention the older ones. As a result, the Ichimoku lines are losing strength, and the pair may return to the 1.1927 level in the next few days. On March 1, we call attention to the following crucial levels: 1.1760, 1.1874, 1.1927-1.1965, 1.2106, 1.2185, 1.2269. Signal sources can also include the Kijun-sen (1.2031) and Senkou Span B (1.2091) lines. These levels and lines can be "bounced" and "overcome" by signals. It is advised to set the stop loss level to breakeven when the price has moved 20 points in the desired direction. The Ichimoku indicator's lines might move during the day, therefore this should be considered while choosing trade signals. There are also support and resistance levels in the illustration that can be used to determine transaction profitability. On Wednesday, no significant information or publications are anticipated in the UK. Although the ISM manufacturing sector index for the US will be announced in the afternoon, the pair is already trading extremely actively.
Explanations for the illustrations:
Thick red lines represent price levels of support and resistance (resistance/support), where the movement may come to an end. They don't provide trading signals, though.
The Ichimoku indicator's Kijun-sen and Senkou Span B lines have been moved from the 4-hour timeframe to the hourly one.
The price previously bounced off of the tiny red lines that represent extreme levels. They provide signals for trading.
Trendlines, trend channels, and other technical patterns are represented by yellow lines.
The net position size of each trading category is represented by indicator 1 on the COT charts.
The net position size for the "Non-commercial" category is shown by indicator 2 on the COT charts.
