M5 chart of GBP/USD
GBP/USD traded between 1.2007 and 1.2106 on Friday. Thus, while the euro is trying to continue its upward movement, the pound has completed its correction and moved into a flat. The fact that both major currency pairs are moving in completely different directions right now is a bit surprising since there are currently no fundamental and macroeconomic backgrounds. Nevertheless, it is the holiday period, so you shouldn't be surprised by illogical and non-standard movements. You could say that both pairs are in a flat right now. So let's just wait for the flat to end because we will finally receive fundamental and macroeconomic data this week. But it will be closer to the end of the week.
There were quite a lot of trading signals on Friday. If not for the Kijun-sen line exactly in the middle of the 1.2007-1.2106 horizontal channel, everything would have been fine, because it would be possible to trade on a pullback from these levels. But I also warned you that Ichimoku indicator lines lose their power during flat conditions so the price can cross them 10 times a day. And so it happened on Friday. The price bounced from the critical line twice during the European session. In the first case, it was 20 pips down, so a Stop Loss should have been set to Breakeven. In the second case, the price reached 1.2007, so the position closed with profit of about 25 points. The rebound from 1.2007 was a buy signal and it should have been worked out too. Literally, within an hour, the pair rose to 1.2106 and rebounded from it, and so traders could earn 70 pips more. The rebound from 1.2106 should have worked with a short position as well, and the price almost hit 1.2007 again. But it didn't work out and the price returned to the area above the critical line. However, this trade also closed in profit, so traders could gain at least 100 pips on the last trading day of 2022.
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
On the one-hour chart, GBP/USD maintains the bearish sentiment but is also in the horizontal channel. The lines of the Ichimoku indicator have already lost their strength because the pair can cross them 5 times a day in a flat. Now we have to wait for the flat to end or trade for a pullback from the limits of the horizontal channel. On January 2, the pair may trade at the following levels: 1.1760, 1.1874, 1.1974-1.2007, 1.2106, 1.2185, 1.2259. Senkou Span B (1.2218) 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. There are no important events in the UK and the US, so there will be nothing to react to for today. I believe that the flat may persist for a few more days.
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.
