Analysis of GBP/USD 5M
On Monday, the GBP/USD pair also attempted to show a new growth phase, but it failed contrary to the logic of movements over the past seven months. For the first time in a long while, the British currency did not rise when everything else did, except the dollar. Thus, the technical picture after the first day of the week remains unchanged. The price is still below the trend line and the Ichimoku indicator lines. Consequently, the pair may sustain its decline, which we count on.
Periods of market panic are a terrible time for trading. When major players make panic trades and shift their assets from one instrument to another, movements can be chaotic and illogical. Therefore, it might be wise to wait a few days until the markets calm down and clarity emerges. For instance, clarity regarding the Federal Reserve, which is rumored to hold an emergency meeting this week, possibly cutting the key rate. We do not believe these rumors, but anything is possible. We do not work at the Fed to clearly understand the prevailing mood inside the monetary committee. If we abstract from all rumors, the pound should continue to fall due to the Bank of England starting to ease monetary policy. In any case, until the price consolidates above the trend line, it is hardly sensible to consider long positions.
On Monday, three identical sell signals were formed for the pound. In none of the cases could the price reach the nearest target area of 1.2691-1.2701. Therefore, all three bearish trades could only be closed manually at a small profit. Nevertheless, this is better than nothing. As soon as the pair started moving actively, signals began to form immediately.
COT report:
COT reports for the British pound indicate that the sentiment among commercial traders has been constantly changing in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, constantly intersect and are often close to the zero mark. According to the latest report on the British pound, the non-commercial group closed 22,800 buy contracts and opened 7,800 short ones. As a result, the net position of non-commercial traders decreased by 30,600 contracts over the week. But the buyers still have a considerable advantage.
The fundamental background still does not provide any grounds for long-term purchases of the pound sterling, and the currency has a real chance to resume the global downward trend. However, an ascending trend line formed in the 24-hour timeframe. Therefore, unless the price breaches this trend line, a long-term decline in the pound is not expected. The pound is rising despite almost everything, but even the COT reports show that major players are happily buying it.
The non-commercial group currently holds 165,600 buy contracts and 54,100 sell contracts. However, apart from COT reports, nothing else indicates potential growth in the GBP/USD pair. Such a strong buyer's advantage suggests a possible trend change.
Analysis of GBP/USD 1H
On the hourly chart, GBP/USD has a real chance to sustain its decline. This is the only logical and regular scenario, but the market is ruled by players, not patterns, and there is currently panic among players. The current technical picture allows for continuing the decline as the trend line remains relevant. Therefore, this week, the pound may continue to move down amid the beginning of the easing of the monetary policy by the Bank of England. However, now it is crucial to monitor the Fed closely.
For August 6, we highlight the following important levels: 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691-1.2701, 1.2796-1.2816, 1.2863, 1.2981-1.2987, 1.3050. The Senkou Span B (1.2909) and Kijun-sen (1.2884) lines can also serve as sources of signals. Setting the Stop Loss to break even when the price moves in the intended direction by 20 pips is recommended. The Ichimoku indicator lines may shift during the day, which should be considered when determining trading signals.
No macroeconomic events are planned in the UK and the U.S. on Tuesday, but no one is interested in them now. Everyone is interested in the issue of a possible emergency rate cut by the Fed. Yesterday, the dollar managed to recover slightly thanks to a strong ISM business activity index in the services sector, so both currency pairs have a good chance of falling.
Explanation of illustrations:
Support and resistance levels: Thick red lines near which the trend may end.
Kijun-sen and Senkou Span B lines: These Ichimoku indicator lines, transferred from the 4-hour timeframe to the hourly chart, are strong lines.
Extreme levels: Thin red lines from which the price previously bounced. These provide trading signals.
Yellow lines: Trend lines, trend channels, and other technical patterns.
Indicator 1 on COT charts: The net position size for each category of traders.
