5M chart of GBP/USD
On Friday, the GBP/USD pair did not even try to extend its downward movement. Take note that there was an ascending trend line during the entire bearish correction period (already two weeks), and the British currency does not seem like it is going to fall anytime soon. At the same time, a new descending trend line has formed on the hourly chart, causing the pair to be trapped between two trend lines. On Friday, the UK released its GDP report. If it did provoke a market reaction, it was minimal, as its value for the first quarter fully coincided with the forecasts. There were no significant reports in the US, and secondary data such as personal income and spending, as well as the Personal Consumption Expenditures Price Index with the Consumer Sentiment Index, were unlikely to add pressure on the dollar. Especially considering that the USD has started falling in the morning. Therefore, we tend to believe that the nature of the movements were more technical.
It was almost impossible to predict the upward reversal in the morning. On the hourly chart, a new support area was formed at 1.2598-1.2605, from which the pair rebounded. Currently, it is located between the Senkou Span B and Kijun-sen lines, and has also tested the trend line. There's a high probability of a rebound and a new downtrend, but the movement is currently volatile. The only signal was formed at the beginning of the US session when the price broke through the Ichimoku indicator lines and the level of 1.2693. It was not the best signal, and traders could only gain 10 pips. But it's better than false signals or losses.
COT report:
According to the latest report, non-commercial traders opened 2,800 long positions and closed 2,500 short ones. The net position increased by 5,300 in just a week and continues to grow. Over the past 9-10 months, the net position has been on the rise. We are approaching a point where the net position has grown too much to expect further growth. We assume that a prolonged bear run may soon begin, even though COT reports suggest a bullish continuation. It is becoming increasingly difficult to believe in it with each passing day. We can hardly explain why the uptrend should go on. However, there are currently no technical sell signals.
The pound has gained about 2,500 pips. Therefore, a bearish correction is now needed. Otherwise, a bullish continuation would make no sense. Overall, non-commercial traders hold 52,300 sell positions and 104,400 long ones. Such a gap suggests the end of the uptrend. We do not see the pair extending growth in the long term.
1H chart of GBP/USD
In the 1-hour chart, GBP/USD maintains a bullish bias, although it is correcting at the moment. The ascending trend line serves as a buy signal. However, we still believe that the British currency is overvalued and should fall in the medium term. The fundamental backdrop for the pound is getting weaker. The dollar also lacks a fundamental advantage but has already lost 2,500 pips over the past 10 months and requires a correction.
On July 3, trading levels are seen at 1.2349, 1.2429-1.2445, 1.2520, 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2737) and Kijun-sen (1.2674) may also generate signals when the price either breaks or bounces off them. A Stop Loss should be placed at the breakeven point when the price goes 20 pips in the right direction. Ichimoku indicator lines can move intraday, which should be taken into account when determining trading signals. There are also support and resistance which can be used for locking in profits.
On Monday, manufacturing PMIs are scheduled for release in both the UK and the US. All the reports, except for the US ISM, will be released in the second estimate, which is unlikely to surprise traders. However, the ISM index may show an unexpected value and, accordingly, stir some market reaction.
Indicators on charts:
Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals.
The Kijun-sen and Senkou Span B lines are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines.
Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals.
Yellow lines are trend lines, trend channels, and other technical patterns.
Indicator 1 on the COT chart is the size of the net position of each trader category.
Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.
