M5 chart of GBP/USD
GBP/USD also plummeted on Tuesday, left the horizontal channel and is now set to continue falling. It is hard to say why the pound plunged yesterday since there were no important events in the UK, and the latest reports referred more to the euro and the dollar, but not to the pound. Nevertheless, the pound was also falling actively, so we conclude that the nature of this movement is technical. If you remember, I have mentioned many times in recent weeks that the pound rose 2000 points too quickly and sharply. The 2000 points is half of the whole downtrend, which lasted 2 years. And this distance has been covered in only 2.5 months. Therefore, the bearish correction was necessary to "restore justice". Thus, from a technical perspective, it is absolutely logical that the pound is falling.
There were a lot of trading signals yesterday because the movement was volatile. Let's break them down. At the beginning of the European session, the pair crossed the critical line so traders had to open the short positions. Then the pair passed 1.2007 and 1.1974 and it passed about 60 more points to the downside. Unfortunately, GBP did not reach 1.1874, and a strong upward movement began in the afternoon. So, when the price crossed 1.1974-1.2007, the shorts should have been closed. Unless, traders closed them earlier manually. You could only get several dozens of points on this trade, and it wasn't possible to do so using the buy signal because the pair failed to reach the critical line. But the long position closed at Stop Loss without loss. The last sell signal should not be executed, as it was formed quite late.
COT report
The latest COT report showed that bearish sentiment had weakened. During the given period, non-commercial traders opened 5,300 long positions and as many as 10,600 short positions. Thus, the net position fell by about 5,300. This figure has been on the rise for several months, and the sentiment may become bullish in the near future. Although the pound has grown against the dollar for the last few weeks, it is still difficult to answer why it keeps rising. On the other hand, it could fall in the near future (in the mid-term prospect) because it still needs a correction. In general, in recent months the COT reports correspond to the pound's movements so there shouldn't be any questions. Since the net position is not even bullish yet, buying may continue for a few months to come. Non-commercial traders now hold 40,600,000 long positions and 51,500 short ones. I am still skeptical about the pound's long term growth, though there are technical reasons for it. At the same time, fundamental and geopolitical factors signal that the currency is unlikely to strengthen significantly.
H1 chart of GBP/USD
GBP/USD left the horizontal channel on the one-hour chart and now it finally has a real opportunity to continue moving downward, as I expected. The price is also located below the Ichimoku indicator lines, which are gaining strength again with the resumption of the trend movement. On January 4, the pair may trade at the following levels: 1.1645, 1.1760, 1.1874, 1.1974-1.2007, 1.2106, 1.2185, 1.2259. Senkou Span B (1.2216) and Kijun Sen (1.2063) lines may also generate signals. Pullbacks and breakouts through these lines may produce signals as well. A Stop Loss order should be set at the breakeven point after the price passes 20 pips in the right direction. Ichimoku indicator lines may move during the day, which should be taken into account when determining trading signals. In addition, the chart does illustrate support and resistance levels, which could be used to lock in profits. On Wednesday, there are no important events planned for Great Britain. Meanwhile, the US will release its ISM manufacturing activity index. The Federal Reserve minutes will be announced in the evening but everyone is focused on the ISM index.
What we see on the trading charts:
Price levels of support and resistance are thick red lines, near which the movement may end. They do not provide trading signals.
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, moved to the one-hour chart from the 4-hour one. They are strong lines.
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 reflects the net position size of each category of traders.
Indicator 2 on the COT charts reflects the net position size for the non-commercial group.
