Analysis of GBP/USD 5M
On Tuesday, GBP/USD continued its downward movement, and the pair even breached the area of 1.2691-1.2701, which is quite significant. However, this didn't last long. In the second half of the day, the pair sharply reversed higher, and an equally strong upward movement began. When we say "strong," we mean "relatively strong." Volatility in the pound remains at its lowest level in several years. For instance, yesterday we saw a 60-pip downward movement, followed by a 60-pip upward movement. This is quite low for the British currency.
Nevertheless, two trading signals were formed during the day. Take note that traders could remain in short positions even after two rebounds from the Senkou Span B line the day before. Yesterday, the pair consolidated below the 1.2691-1.2701 area, which served as another sell signal. And then it surpassed the same area by moving upwards. If traders continued to hold short positions after the rebounds from the Senkou Span B, they earned about 25 pips on them. Once again, let's pay attention to the real situation: a full day in the trade and only 25 pips of profit. A buy signal could have earned another 15 pips. The trade should have been manually closed in the evening.
As for the macroeconomic background, the US reports did not trigger any market reaction. And the UK events calendar was completely empty. However, today, the UK will release a key inflation report, and tomorrow, we have the results of the Bank of England's meeting. One can hope that at least volatility will not decrease.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has frequently changed in recent months. The red and blue lines, which represent the net positions of commercial and non-commercial traders, constantly intersect and, in most cases, remain close to the zero mark. According to the latest report on the British pound, the non-commercial group opened 21,000 buy contracts and 8,900 short ones. As a result, the net position of non-commercial traders increased by 12,100 contracts in a week. Despite the fact that the net position of speculators is growing, the fundamental background still does not provide a basis for long-term purchases of the pound sterling.
The non-commercial group currently has a total of 112,300 buy contracts and 52,800 sell contracts. The bulls have a big advantage. However, in recent months, we have repeatedly encountered the same situation: the net position either increases or decreases, and the bulls or the bears either have the advantage. Since the COT reports do not provide an accurate forecast of the market's behavior at the moment, we have to scrutinize the technical picture and economic reports. The technical analysis suggests that there's a possibility that the pound could show a pronounced downward movement (descending trend line), but there is currently no sell signal on the higher time frames.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD is attempting to form a new downtrend. The economic reports and the fundamental background do not support the British pound, but we have already seen something similar in the second half of 2023. Back then, the pound also rose for no apparent reasons. Today and tomorrow, both the pound and the dollar await at least three crucial events, so movements can be diverse and chaotic. We expect the pound to fall.
As of March 20, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B line (1.2745) and the Kijun-sen (1.2743) can also serve as sources of signals. Don't forget to set a Stop Loss to breakeven if the price has moved in the intended direction by 20 pips. The Ichimoku indicator lines may move during the day, so this should be taken into account when determining trading signals.
On Wednesday, the UK will release the inflation report for February, while the results of the second FOMC meeting will be announced in the US along with new forecasts for the key interest rate. Federal Reserve Chief Jerome Powell's speech will be a highlight on Wednesday. All four events are of great importance to the market, the dollar, and the pound. From a technical perspective, rebounds from the Senkou Span B lines, Kijun-sen, and the trend may trigger a logical decline in the British currency.
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.
