Analysis of GBP/USD 5M
On Wednesday, the British pound was marginally lower against the US dollar. However, this decline fits within the framework of a sideways channel on the hourly chart, as clearly seen in the chart below. Thus, a further decline in quotes is not obvious for now. The pair is in a flat state, similar to the EUR/USD. Given the amount of events and reports that we have seen this week, there's nothing surprising about it. The market has taken a pause. This might end today with the US inflation report, or it might continue for another two weeks. However, the British pound remains extremely overbought and unreasonably expensive. We insist that the pair should extend its downward movement, regardless of the fundamental backdrop. On the 24-hour chart, it's clear that there have been no significant corrections in the last six months.
Since the pound didn't remain stagnant on Wednesday, traders could have gained profit. Initially, the quotes settled above the level of 1.2762 but failed to move in the right direction even by 20 pips. A long position closed with a small loss when the price dropped below 1.2762 and formed a sell signal. After that, the pair continued to fall almost throughout the day, but the price didn't reach the critical line, missing it by just 5 pips. Therefore, shorts were better off closed manually closer to the evening. The profit amounted to 30-35 pips.
COT report:
According to the latest report, the non-commercial group of traders closed 13,300 long positions and 3,800 short ones. Thus, the net position of non-commercial traders fell by almost 10,000 positions in a week. But in general, it is still rising. The net position has been steadily growing over the past 10 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 and not many technical signals for short positions either.
The British currency has already grown by a total of 2,800 pips, from its absolute lows reached last year, which is a significant increase. Without a downward correction, the continuation of the uptrend will be illogical. However, there has been no logic in the pair's movements for quite some time. The market perceives the fundamental background one-sidedly, ignoring any data in favor of the dollar. The Non-commercial group of traders has opened 92,100 long positions and 42,600 short ones. I remain skeptical about the long-term growth of the pound sterling but speculators continue to buy and the pair continues to rise.
Analysis of GBP/USD 1H
On the 1H chart, the pound/dollar pair continues to correct, and is currently trading within a sideways channel. As a result, the Ichimoku indicator lines are currently weak, and the price may cross them multiple times a day. The sideways channel is well-defined, ranging from 1.2693 to 1.2786. You may decide for yourself whether you would want to trade in a flat market. Just remember that right now there are no trends, and the Ichimoku indicator lines might generate false signals.
On August 10, traders should pay attention to the following key levels: 1.2520, 1.2598-1.2605, 1.2693, 1.2786, 1.2863, 1.2981-1.2987, 1.3050. The Senkou Span B line (1.2805) and the Kijun-sen line (1.2735) lines can also serve as 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.
Today, there are no important events or reports lined up in the UK. The US will release the Consumer Price Index for July, which could be significant for the market. Forecasts suggest that inflation has increased. If inflation did rise, the US dollar has more chances to increase as well.
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.
