GBP/USD 5M analysis
Tuesday saw the GBP/USD currency pair resume its downward trend, but it was unable to pass the 1.2007 mark. However, we emphasize once more that the pound is not flat, which is already very positive. Naturally, there was less volatility in the days leading up to New Year's Eve, but at least the pound is now moving in a trend, making it possible to trade and profit. The pound sterling was still lacking in a fundamental and macroeconomic context, but it had been rising as irrationally in recent weeks as it is now. The current fall has technical causes, then. And we still anticipate that it will continue to decline. Remember that several factors, some of which we have covered in our foundational articles, have led many experts to predict a decline in the value of the British pound.
If traders had bad luck with the euro/dollar pair yesterday, they had good luck with the pound/dollar pair. The price bounced back from the range of 1.2093–1.2106 at the very start of the European trading session before dropping to the closest target level of 1.2007. This trading signal had to be identified by traders using a short position, and they made a profit of about 60 points doing so. It should have been possible to profit from the rebound from the 1.2007 level, but it was not feasible. The deal should have been set to a breakeven Stop Loss, at which it closed, but since the pair increased by more than 20 points.
The COT Report
The "bearish" sentiment significantly declined, according to the most recent COT report on the British pound. The Non-commercial group opened 3.2 thousand BUY contracts and closed up to 16.8 thousand SELL contracts over the course of the week. As a result, the net position of non-commercial traders has increased exactly by 20,000, which is a significant increase for the pound. The net position indicator has been steadily increasing over the past few months, and major players' sentiment may soon turn bullish. Although the value of the pound against the dollar is rising, it is very challenging to explain why this is the case from a fundamental standpoint. Since there is a need to at least adjust, we absolutely do not rule out the possibility that the pound will continue to decline in the near future. There shouldn't be any concerns because, on the whole, COT reports in recent months have tracked the movement of the pound sterling. Purchases could continue for several months in the future, as the net position is still not even bullish. A total of 40.8 thousand sales contracts and 35.2 thousand purchase contracts have now been opened by the non-commercial group. We can see that the difference is already negligible. While there are technical reasons for this, geopolitics do not support such a strong and quick strengthening of the pound sterling, so we continue to be skeptical about the currency's long-term growth.
The pound/dollar pair is still trading below the Ichimoku indicator's lines on an hourly basis. Yesterday, it worked out the pivotal Kijun-sen line, from which it bounced. We are still anticipating further declines in the value of the British pound because this rebound may be a sell signal. We highlight the following significant levels on December 28: 1.1760, 1.1874, 1.1974–1.2007, 1.2106, 1.2185, and 1.2259. Signal sources can also include the Senkou Span B (1,2218) and Kijun-sen (1,2069) lines. These levels and lines can be "bounced" and "overcome" by signals. It is advised to set the stop loss level at breakeven when the price has moved 20 points in the desired direction. The Ichimoku indicator's lines can move throughout the day, so this should be considered when choosing trading signals. In the illustration, there are support and resistance levels that can be used to take profits on trades. There won't be anything to react to during the day on Wednesday because there are no significant events planned for either the UK or the US. Despite the pair's continued downward slope and our belief that the flat could begin at any time, a small movement to the south is still conceivable.
Explanations for the illustrations:
Thick red lines represent price levels of support and resistance (resistance/support), where the movement may come to an end. They don't provide trading signals, though.
The Ichimoku indicator's Kijun-sen and Senkou Span B lines have been moved from the 4-hour timeframe to the hourly one. have solid lines.
The price previously bounced off of the thin red lines that represent extreme levels. They provide signals for trading.
Trendlines, trend channels, and other technical patterns are represented by yellow lines.
The net position size of each trading category is represented by indicator 1 on the COT charts.
The net position size for the "Non-commercial" group is represented by indicator 2 on the COT charts.
