Analysis of GBP/USD 5M

The pound showed conflicting movements on Thursday. At the beginning, the pair sharply fell (ahead of the Bank of England meeting), then it rose substantially, and somewhere in the middle, it managed to "draw a fence." Thus, there was plenty of confusion in the pair's movements yesterday. The main item on the agenda was the BoE meeting, and describing its results would require more words than available. On the one hand, the key interest rate was raised by 0.25%, as the market expected. On the other hand, the BoE did not provide any clear signals regarding its future course of actions. The rate will likely rise until the end of the current year, but the market might have already factored this in. Take note that the pound has risen by nearly 3000 pips over the last 10-11 months. Therefore, the pound gained about 10-20 pips yesterday, and there were no significant changes in the technical picture.

There were few trading signals yesterday, and they were not as disappointing as those for the euro. This is because the pound was moving during the day, rather than remaining stagnant. A fairly decent sell signal was formed around the 1.2693 level during the European session. After that, the pair dropped about 50 pips, and traders even had the opportunity to profit from it, as it was advisable to close all positions manually before the BoE meeting results were announced. Executing the signals during the US session was not recommended, as the movements became confusing, although they would not have resulted in any losses. The pair moved in the right direction at least 20 pips each time.

COT report:

According to the latest report, the non-commercial group of traders opened 29,800 long positions and 25,000 short ones. Thus, the net position of non-commercial traders fell by 4,800 positions in a week. But in general, it is still rising. The net position has been steadily growing over the past 10 months as well as the pound sterling. Now, the net position has advanced markedly. This is why the pair will hardly maintain its bullish momentum. I believe that a long and protracted downward movement should begin. COT reports signal a slight growth of the British currency but it will not be able to rise in the long term. There are no drivers for opening new long positions. There are no technical signals for short positions yet.

The British currency has already grown by a total of 2,800 pips, from its absolute lows reached last year, which is a significant increase. Without a downward correction, the continuation of the uptrend will be illogical. However, there has been no logic in the pair's movements for quite some time. The market perceives the fundamental background one-sidedly, ignoring any data in favor of the dollar. The Non-commercial group of traders has opened 105,500 long positions and 46,500 short ones. I remain skeptical about the long-term growth of the pound sterling but speculators continue to buy because the pair is growing.

Analysis of GBP/USD 1H

On the 1H chart, the pound/dollar pair extends its downward movement. The bounce from a critical line has triggered a new downward momentum. There are several events lined up for Friday, and we don;'t know how the market will react, so the pound could still show growth. However, we believe that the pair should continue to fall in the medium term since it has breached the ascending trendline, the price is below the Ichimoku indicator lines, and the pound remains overbought.

On August 4, traders should pay attention to the following key levels: 1.2520, 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987, 1.3050. The Senkou Span B line (1.2943) and the Kijun-sen line (1.2746) can also serve as sources of signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits.

On Friday, the UK will release its Construction PMI. The US will publish important reports on Nonfarm Payrolls and unemployment. We expect strong movements after these reports, but they will depend on the numbers.

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.