Analysis of GBP/USD 5M
GBP/USD also retreated on Wednesday. The British pound has been unable to resume the bullish correction and has fallen below both Ichimoku indicator lines. Thus, the technical picture on the hourly chart suggests a continuation of the downtrend rather than a corrective phase. We've already mentioned that last week's correction was quite weak, so we expect the pound to rise. However, at the moment, it appears that we might be heading towards either a flat or the pound may resume its decline.
Yesterday, the UK released its inflation report, which had no impact on the pair's movement. This is evident from the "fence" during the European session. If the report managed to move the market, it did not exceed 20 pips. We've warned you that inflation reports no longer have the same influence on currencies as they did in the past.
Speaking of trading signals, the pair formed three signals. All three were near the Senkou Span B line during the US session. They were false signals, which is not surprising at all. Traders might have tried to execute the first signal, resulting in a small loss. Movements remain chaotic, with many important lines and levels left ignored.
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 7,600 long positions and 4,200 short ones. Thus, the net position of non-commercial traders decreased by another 3,400 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 two 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 66,300 longs and 76,300 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 settled below the ascending trendline. The pair has the potential to correct higher but the chances of that happening are diminishing with each passing day. We have repeatedly mentioned that we are expecting a stronger correction, but the market seems to think otherwise. The market is ignoring the Ichimoku indicator lines, which is an indirect sign of a flat market.
As of October 19, we highlight the following important levels: 1.1760, 1.1874, 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. The Senkou Span B (1.2173) and Kijun-sen (1.2186) 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 Thursday, there are no significant events lined up for the UK. These days it seems that important reports are unable to move the market. Today, market participants will keep an eye on Federal Reserve Chairman Jerome Powell's speech. Investors may also look to the release of data on US unemployment claims and new home sales.
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.
