Analysis of GBP/USD 5M
GBP/USD also traded with very weak volatility on Monday. The explanation for this is straightforward. There were no important events scheduled in either the US or the UK, so there was no fundamental and macroeconomic background. The markets had a very turbulent week so it probably needed a well-deserved break. While the pair consolidates, market participants will analyze and make decisions about their next steps. We still believe that the pound has not gained more chances to rise further after the Bank of England and the Federal Reserve meetings. Yes, the market reacted impulsively and predictably because Powell's stance was dovish, and Bailey's rhetoric was the most hawkish of all possible options. But at the same time, nothing has changed. There is a 90% probability that the talk next year will be about lowering key interest rates, not raising them. There won't be a scenario where the BoE continues tightening while the Fed starts easing.
From a technical perspective, the situation is quite interesting. The pound has approached an area where the Senkou Span B and Kijun-sen lines intersect, along with the levels of 1.2605 and 1.2620. Therefore, it is a very strong area. If GBP/USD rebounds from it, the pair may resume its growth. If we witness a breakthrough (and we support this scenario), the pound will naturally fall back to the level of 1.2513, from where its last upward move began.
Throughout the entire trading day, only one trading signal was generated. Before the start of the US trading session, the price dropped to the Kijun-sen line, prompting a bounce from it. However, as we warned, it is quite difficult to expect growth right now. The price moved in the intended direction by no more than 15 pips, so it was not possible to profit from this trade.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in the last few 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 are currently not in control of 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 sharply surged, but we believe that it should return to its initial positions. The pair started to fall on Friday and it may continue to do so this week. We believe that the pound has no reason to exhibit long-term growth. Therefore, we expect the pair to return to the level of 1.2513.
On Tuesday, we recommend closely monitoring the price's behavior around the Ichimoku indicator lines and the area of 1.2605-1.2620. You can open longs with 1.2726 as the target when the pair bounces from any supports, but (as Monday showed) even in this case, it is very difficult to count on growth. If the price consolidates below this area, you can sell the pair with 1.2513 as the target.
As of December 19, 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. Senkou Span B (1.2615) and Kijun-sen (1.2645) 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 Tuesday, there are no important events lined up in the UK. From the US, a report on Building Permits will be due. We believe that even this report is unlikely to trigger a strong market reaction. Therefore, today may be as dull as yesterday's.
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.
