Analysis of GBP/USD 5M
GBP/USD had skyrocketed on Tuesday, which was also triggered by the US inflation data. As mentioned before, it seems illogical for the dollar to show such a deep decline because the value of the inflation data wasn't exactly groundbreaking. The market expected a slowdown to 3.3%, and the actual figure was a slowdown to 3.2%. The core inflation could have remained at 4.1%, but it fell to 4.0%. Thus, the changes weren't as crucial, but then the market reacted as if both consumer price indices had suddenly fallen to 2%. UK reports on unemployment and wages turned out to be much more resonant, as the first indicator did not rise contrary to forecasts, and the second one slowed down much less than expected. However, the market chose to ignore these reports.
Traders also had a stroke of luck with the pound's trading signals. During the European trading session, the price bounced off the level of 1.2269, and by the time the US inflation data was released, traders only had to set a Stop Loss at the opening level and wait for developments. The pair could easily have started a powerful decline if inflation had been higher than expected. But in the end, we saw a rise that allowed for a profit of about 200 pips, as the price reached the 25th level.
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 3,400 long positions and 1,700 short ones. Thus, the net position of non-commercial traders decreased by another 1,700 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 three 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 63,700 longs and 85,800 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 has started another corrective phase. If it weren't for a crucial US report that turned out to be weak, we wouldn't see a new cycle. But this is precisely the case where the macroeconomic background has a very strong impact on the technical picture. There's nothing we can do about it. We still expect a downtrend in the medium-term, but for now this has been put on hold.
As of November 15, we highlight the following important levels: 1.1927-1.1965, 1.2052, 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2693, 1.2786. The Senkou Span B (1.2257) and Kijun-sen (1.2345) 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 Wednesday, the UK will publish its inflation report. Forecasts suggest that inflation could slow down by as much as 2%, so we might see a strong market reaction. The US will release minor reports and Federal Reserve officials are scheduled to speak. Their rhetoric may be important in the near future as they may start commenting on the latest inflation report.
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.
