Analysis of GBP/USD 5M
GBP/USD showed more bearish bias on Wednesday, even when there were no fundamental or macroeconomic reasons for it to fall. The euro showed two corrective waves and had the right to end it. But on the other hand, the pound couldn't even demonstrate a second corrective wave, but in the early hours of today(!), it breached the 1.2109 level, which had previously been a rebound point. Now, it has every chance to fall further. It's worth mentioning that the main scenario we are considering is a medium-term decline. So, from a technical perspective, everything is going according to plan. The only thing is that we expected a more substantial correction, but it seems the market had its own ideas.
The pair did not generate any trading signals on Wednesday. The pair approached the critical line once and the level of 1.2109 twice, but it didn't react to them on any occasion. Therefore, there were no reasons to open any position. Volatility was around 70 pips, which is quite low for the pound. While the pair was not entirely still, the movements were not favorable either. So, it's even better that there were no trading signals.
COT report:
COT reports on the British pound also align perfectly with what's happening in the market. According to the latest report on GBP/USD, the non-commercial group closed 700 long positions and opened 400 short ones. Thus, the net position of non-commercial traders decreased by another 1,100 contracts in a week. The net position indicator has been steadily rising over the past 12 months, but it has been firmly decreasing over the past two months. The British pound is also losing ground. We have been waiting for many months for the sterling to reverse downwards. Perhaps GBP/USD is at the very beginning of a prolonged downtrend. At least in the coming months, we do not see significant prospects for the pound to rise, and even if we're currently witnessing a corrective phase, it could persist for several months.
The British pound has surged by a total of 2,800 pips from its absolute lows reached last year, which is an enormous increase. Without a strong downward correction, a further upward trend would be entirely illogical (if it is even planned). We don't rule out an extension of an uptrend. We simply believe that a substantial correction is needed first, and then we should assess the factors supporting the US dollar and the British pound. A correction to the level of 1.1844 would be enough to establish a fair balance between the two currencies. The non-commercial group currently holds a total of 65,500 longs and 76,700 shorts. The bears have been holding the upper hand in recent months, and we believe this trend will continue in the near future.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD tried to form a new corrective wave, but it quickly ended near the level of 1.2269. Currently, the pair has dropped below the Ichimoku lines and the critical level of 1.2109. This suggests that the medium-term downtrend has started again. And these are not the only sell signals. There are signals on the 4-hour and 24-hour time frames as well. We support the British currency's decline.
As of October 26, we highlight the following important levels: 1.1760, 1.1874, 1.1927-1.1965, 1.2052, 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, and 1.2693. The Senkou Span B (1.2213) and Kijun-sen (1.2182) 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 significant events scheduled in the UK. From the US, market participants will keep an eye on the quarterly GDP data and orders for durable goods. The forecasts for both reports are quite optimistic. The European Central Bank meeting could also influence the GBP/USD pair's movement.
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.
