Analysis of GBP/USD 5M
On Friday, GBP/USD failed to surpass the level of 1.2109 and continue its downward movement. This is not the first time the price has bounced off this level. The pound breached this mark on Thursday, but that turned out to be a false breakout. As we have previously mentioned, we don't see any other scenario unfolding besides the pound's broad weakness. The upward correction has been weak, and it's possible that this week's macroeconomics and fundamentals will help the pound form a stronger bullish correction. However, with the same success, market sentiment could exert pressure on the pound. The fact that the price is currently below the Ichimoku indicator lines still suggests the pair's decline.
There were two trading signals on Friday. The price bounced off the level of 1.2109 twice. In the first instance, it only managed to rise by 18 pips, and in the second, a bit more, by around 40 pips. Therefore, only one long position should have been opened, and it should have been manually closed in the evening. So you could have gained about 30 pips in profit, but volatility was not high enough, making it hard to expect significant gains.
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 opened 1,500 long positions and 9,000 short ones. Thus, the net position of non-commercial traders decreased by another 7,500 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 three 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 67,100 longs and 85,800 shorts. The bears have had 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 tried to form a new corrective wave last week, but it quickly ended near the level of 1.2269. Currently, the pair has dropped below the Ichimoku lines and the critical level of 1.2109. This suggests that the medium-term downtrend will resume. If, during the current upward retracement, the price does not rise above the Kijun-sen line, we can expect a new downward wave. However, this week, it will depend on fundamentals and macroeconomics.
As of October 30, 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 (1.2213) and Kijun-sen (1.2177) 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 Monday, there are no significant events scheduled in the UK and the US. Therefore, today's movements may be weak and we probably won't see any trends. The market is clearly in preparation ahead of the Federal Reserve and Bank of England meetings.
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.
