Analysis of GBP/USD 5M
GBP/USD also traded higher on Tuesday. The British pound rose by "only" 100 pips. Take note that the price increased in the absence of economic reports and events. The reason for the pound's 100-pip increase is unclear. As mentioned before, the British currency has as little reason to rise as the euro. That is, very little. Yes, the technical picture clearly indicates an uptrend, but currency pairs are traded not only based on technicals. There is also the fundamental aspect with macroeconomics. When a situation like yesterday arises, there can only be one conclusion: the market is buying the pair simply because it is rising.
Since the price is currently above the Ichimoku indicator lines, and all the timeframes show that indicators are pointing upwards, it would be foolish to sell. We still expect a substantial decline, but we don't recommend opening short positions without corresponding signals. We are forced into a situation where most factors stubbornly point to a downward direction, but the pair confidently and persistently moves upward.
Speaking of trading signals, a buy signal formed overnight when the price rebounded from the Kijun-sen line, as clearly seen on the 4-hour timeframe. By the opening of the European session, the pair had not moved far from the point of formation, so you could open long positions. Subsequently, the price rose to the level of 1.2726, surpassed it, and continued to move upward. As of Tuesday evening, not a single sell signal had been generated. Therefore, longs could be closed manually, and the profit from them was at least 80 pips, which is quite good.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in recent months. The red and green lines, representing the net positions of commercial and non-commercial traders, often intersect and, in most cases, are not far from the zero mark. According to the latest report on the British pound, the non-commercial group opened 5,600 long positions and closed 4,200 short ones. Therefore, the net position of non-commercial traders increased by 9,800 contracts in a week. Since bulls do not currently dominate the market, we don't think that the British currency will continue to rise for a long time.
The non-commercial group currently has a total of 72,000 long positions and 50,400 short ones. Since the COT reports cannot make an accurate forecast of the market's behavior at the moment, and the fundamentals are practically the same for both currencies, we can only consider the technical picture and economic reports. The technical analysis allows us to expect a strong downtrend, and the economic reports have been significantly stronger in the United States than in the United Kingdom.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD sharply surged, then corrected, and at the beginning of the new week, it sharply rose again. We believe that the British pound does not have any reasons to experience long-term growth, just as there were none before. Therefore, we expect the pair to return to the level of 1.2513. But it would be foolish to deny that the uptrend persists, so selling without signals is not advisable.
On Wednesday, we recommend closely monitoring the price's behavior around the levels of 1.2726 and 1.2786. Below the first, the price may consolidate and sharply fall towards the Ichimoku indicator lines, while from the second, it may bounce and also fall towards the Senkou Span B and Kijun-sen lines. You can stay in longs while aiming for 1.2786, since the pair has not surpassed the level of 1.2726. But we need to remind you that there are no fundamental factors supporting the pound's growth.
As of December 20, we highlight the following important levels: 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2615) and Kijun-sen (1.2645) 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 Wednesday, the UK will release important data. More precisely, November's inflation figures will be released, along with its derivatives (e.g., core inflation). These reports are crucial and can trigger a strong market reaction.
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.
