Analysis of GBP/USD 5M
GBP/USD showed bullish trades on Wednesday. The last attempt at a correction was laughable, as the price couldn't even drop below the critical line. One might speculate that the pound grew due to Federal Reserve Chief Jerome Powell's second round of testimony before the US Congress. However, the day before, the British currency was declining, while the euro remained stagnant on Wednesday. If Powell had shared important information with the congressmen and the market on Tuesday, the pound would have already risen on Tuesday. Similarly, if Powell had shared anything significant on Wednesday, the single currency would have risen as well.
Thus, we can say that the British currency once again showed an absolutely illogical rise. Certainly, the pound's overall growth might be driven by the elections in the UK, just as the euro's overall growth is driven by the elections in France. However, in our opinion, this is merely an excuse, an attempt to explain the current movement. No one knows what changes will occur in the British economy during the Labour Party's term. The mere fact that they may come to power cannot be considered something positive for the pound.
The technical picture remains unchanged, as volatility remains very low. Yesterday, the pound rose to its latest high, so today it might attempt a correction. We don't know what will come out of this correction. The US inflation report could easily provoke a new dollar sell-off. Moreover, it doesn't take much for the US currency to fall against the pound right now.
Yesterday, there was one buy signal. During the American trading hours, the price consolidated above the 1.2796-1.2816 area and managed to rise another 20 pips by the end of the day. Traders could have gained this amount of profit, but the trade had to be closed manually, as it is not feasible to expect the pair to reach the nearest target level within a few hours at this time.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has frequently changed in recent years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, constantly intersect and mostly remain close to the zero mark. According to the latest report on the British pound, the non-commercial group closed 3,400 buy contracts and opened 200 short ones. As a result, the net position of non-commercial traders decreased by 3,600 contracts over the week. Thus, sellers failed to seize the initiative.
The fundamental background still does not provide a basis for long-term purchases of the pound sterling, and the currency has a good chance to resume the global downward trend. However, the price has already breached the trend line on the 24-hour timeframe at least twice. The level of 1.2800 (which is the upper boundary of the sideways channel) is currently preventing the pound from rising further.
The non-commercial group currently has a total of 102,400 buy contracts and 58,500 sell contracts. The bulls are taking the lead in the market, but aside from the COT reports, nothing else suggests a potential rise in the GBP/USD pair. Such a strong advantage suggests that the pair may fall...
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD failed to overcome the 1.2605-1.2620 area. A new rebound from this area triggered another round of the corrective movement, and now the pair is near its 10-month highs. We expect the pound to fall in the medium-term, but the market is not interested in selling the pound regardless of the fundamental background. If the pair firmly overcomes the 1.2796-1.2816 area, we will consider the possibility of prolonging the upward trend. However, the pound has not firmly consolidated.
As of July 11, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691-1.2701, 1.2796-1.2816, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2694) and Kijun-sen (1.2796) lines 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 Thursday, the UK will finally publish a series of reports. In particular, monthly GDP and industrial production data will be released. But does the market even need these reports right now? The US will release a crucial inflation report for June, which could easily trigger the dollar's collapse.
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;
