Analysis of GBP/USD 5M

GBP/USD remained at the backfoot on Wednesday. Unlike the euro, the pound sterling started to fall in the first half of the day. Take note that the only influential report was the US ISM Services PMI, which made it possible for the US dollar to regain some lost gains. So, once again, everything is logical and in line with our expectations. On the other hand, the UK Construction PMI fell again, exerting a bit of downward pressure on the pound in the first half of the day. Therefore, nothing has changed. The downtrend persists, and the pound gradually falls.

There was only one trading signal on Wednesday. The price broke through the level of 1.2520, but this happened when the ISM Services PMI was released in the United States. It was risky to open a short position at that time, and the pair only declined briefly. Therefore, the best option was not to enter the market based on this signal. In general, the movement was quite good, but it was not possible to catch when it started, and by the time it ended, it was already too late to enter the market.

COT report:

According to the latest report, the non-commercial group of traders closed 900 long positions and opened 9,800 short ones. Thus, the net position of non-commercial traders decreased by 10,700 positions in a week. The net position has been steadily growing over the past 11 months as well as the pound sterling. Now, the net position has advanced markedly. This is why the pair will hardly maintain its bullish momentum. I believe that a long and protracted downward movement should begin. COT reports signal a slight growth of the British currency but it will not be able to rise in the long term. There are no drivers for opening new long positions. Sell signals are starting to appear on the 4-hour and 24-hour charts.

The British currency has already grown by a total of 2,800 pips, from its absolute lows reached in 2022, which is a significant increase. Without a downward correction, the continuation of the uptrend will be illogical. We are not against the uptrend; we just believe a solid correction is needed first. The market perceives the fundamental background one-sidedly, ignoring any data in favor of the dollar. The Non-commercial group of traders has a total of 97,000 long positions and 48,700 short ones. I remain skeptical about the long-term growth of the pound sterling, and the market has recently started to pay more attention to short positions.

Analysis of GBP/USD 1H

On the 1H chart, GBP/USD has settled below the ascending trendline, which shows that it may extend its downward movement. The price is also below the Ichimoku indicator lines. The pair could show erratic movements amid the weak fundamental background. A bearish bias but the pair is not in a hurry to move downward.

On September 7, traders should pay attention to the following key levels: 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2693, 1.2786, 1.2863. The Senkou Span B (1.2672) and Kijun-sen (1.2596) lines can also be sources of signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits.

On Thursday, there are no important reports or events lined up in the UK, while the US will only release a report on initial jobless claims. As we can see, the macroeconomic background will be weak again, so we might see a bullish correction, but in any case, we shouldn't make a guess. We need clear technical signals for entering the market.

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.