Analysis of GBP/USD 5M
GBP/USD advanced on Thursday, but due to Wednesday's drop, the pound has a different outlook from the euro. The main difference is that the pound is below the Ichimoku indicator lines. Yesterday, the pair suddenly rose after Federal Reserve Chair Jerome Powell's speech. Powell's rhetoric noticeably differed from the hawkish stance of his colleagues. Thus, it would have been logical for the dollar to rise. Instead, the pair surged (though it eventually retreated to its initial position). In any case, the situation has become even more confusing since the pair was clearly flat on the hourly chart, with the price below the Kijun-sen and Senkou Span B lines. Different technical outlooks for the euro and the pound, and we have yet to see a more pronounced correction.
Speaking of trading signals, yesterday's situation was quite straightforward. Three signals were formed around the 1.2109 level during the European session, but the first two turned out to be false signals. The pair did not even move by 20 pips in the intended direction, so both trades closed with a small loss. The third buy signal turned out to be quite good. However, traders shouldn't have executed it since the first two were false signals. In the evening, the pair rebounded from the Senkou Span B line, but it was better not to trade during Powell's speech.
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 more pronounced correction, but the market seems to think otherwise. The market is ignoring the Ichimoku indicator lines, but currently, the price is below them. In addition, the "barrier" is clearly visible, which is a sign of a flat.
As of October 20, 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 line (1.2186) and Kijun-sen (1.2153) 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 Friday, the UK will release a retail sales report, and there are no major reports in the US. The market could respond to the sole report of the day, but it's unlikely to pull the pair out of the consolidation and flat it is currently in.
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.
