Analysis of GBP/USD 5M
GBP/USD traded lower on Wednesday. On the surface, everything seemed fine and logical. The macroeconomic background was processed as expected, and the pair fell as forecasted. However, the situation is not as straightforward. The British pound fell formally. It lost less on the resonant inflation report than it gained with an empty calendar. In other words, in the absence of growth factors, the pound rises by 100 pips, and with quite reasonable factors for a decline, it falls by 50 pips. That seems to be the market's logic at the moment.
Throughout the day, the British pound dropped to the Senkou Span B line and did not surpass it. Therefore, the pair could rise again. For instance, the U.S. GDP report is scheduled for release today, and on Friday, the UK GDP report will be published. The British economy may not even show growth, while the American one will show growth close to 5%. And even if there are slight deviations from the forecasts, whose economy is stronger? Whose report is better? The answer is obvious. However, the bears cannot even push the Senkou Span B line today, despite having all the necessary reasons to do so. This suggests that the pound could rise again.
There were few trading signals on Wednesday. Traders could earn 55 pips on the first sell signal near the level of 1.2726 as the price dropped to the Kijun-sen line and it worked out perfectly. Two rebounds from the Kijun-sen line (in the second case, a rebound from the area of 1.2605-1.2645) did not lead to a strong growth, allowing us to hope that the pair could fall tomorrow. Nonetheless, traders could earn a maximum of 10-15 pips.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in recent months. The red and green lines, representing the net positions of commercial and non-commercial traders, often intersect and, in most cases, are not far from the zero mark. According to the latest report on the British pound, the non-commercial group opened 5,600 long positions and closed 4,200 short ones. Therefore, the net position of non-commercial traders increased by 9,800 contracts in a week. Since bulls do not currently dominate the market, we don't think that the British currency will continue to rise for a long time.
The non-commercial group currently has a total of 72,000 long positions and 50,400 short ones. Since the COT reports cannot make an accurate forecast of the market's behavior at the moment, and the fundamentals are practically the same for both currencies, we can only consider the technical picture and economic reports. The technical analysis allows us to expect a strong downtrend, and the economic reports have been significantly stronger in the United States than in the United Kingdom.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD is making every effort to correct lower, but the uptrend persists. We believe that there are no reasons for the British pound to experience long-term growth, and there still aren't any. Therefore, we expect the pair to return to the level of 1.2513. But it would be foolish to deny that the uptrend persists, so selling without appropriate signals is not advisable.
On Thursday, we recommend closely monitoring the price's behavior around the Senkou Span B line. At the moment, the price has bounced off it, but today it may attempt to overcome it again. It may succeed on the third attempt. However, in this case, the decline could end in the area of 1.2605-1.2620, so be cautious with short positions. As for longs, they can be opened on the third unsuccessful attempt to overcome Senkou Span B. However, you need to be cautious, as the pound doesn't have any factors to support an upward movement.
As of December 21, we highlight the following important levels: 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2646) and Kijun-sen (1.2708) 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.
On Thursday, there are no important events lined up in the UK. The US will release two reports of moderate significance – GDP and initial jobless claims.
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.
