GBP/USD 5-Minute Analysis
The GBP/USD currency pair continued its upward movement on Friday despite having no substantial reasons. The U.S. markets were closed for the day, and the UK had no noteworthy events to capture market attention throughout the week. Thus, the pound's growth appears to be driven purely by technical factors. As mentioned in other analyses, the British currency often demonstrates stronger growth than what the macroeconomic and fundamental background warrants. This is a negative signal. We believe the pound's resilience is tied to the Bank of England's hawkish stance. Logically, when the BoE starts cutting rates faster, the pound will likely decline more rapidly. We see no grounds for medium-term growth in the pound.
The price has consolidated above another important area of 1.2691–1.2701, increasing its chances of continuing upward. However, last week's growth was purely technical, and any further strengthening of the pound can end at any moment, as it is part of a broader correction.
Two technical signals were generated on Friday, but both left much to be desired. First, the price consolidated below the 1.2691–1.2701 area, then moved above it. Due to the low volatility, neither signal reached its target levels. Unfortunately, there was no meaningful follow-through. The second buy signal wasn't worth acting on since it occurred almost at the close of the trading week.
COT Report
The COT reports for the British pound show that sentiment among commercial traders has frequently shifted in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, often cross and mostly remain close to the zero mark. The recent downward trend occurred when the red line was below zero. The red line is above zero, while the price has breached the key 1.3154 level.
According to the latest report on the British pound, the Non-commercial group closed 18,300 BUY contracts and 2,500 SELL contracts. Thus, the net position of Non-commercial traders decreased by another 15,800 contracts during the week.
The fundamental backdrop still does not justify long-term purchases of the British pound, and the currency has a real chance of resuming a global downtrend. On the weekly timeframe, there is an upward trendline. Until this line is broken, a long-term decline in the pound is unlikely. While the pound has tested this trendline, it hasn't yet consolidated below it. A rebound and correction could occur in the long term, but we believe the line will eventually be breached, and the downtrend will continue.
GBP/USD 1-Hour Analysis
In the hourly timeframe, the GBP/USD pair maintains a generally bearish outlook, so further significant and prolonged declines in the British currency are expected. While the pair has exited the descending channel, the correction does not necessarily have to be strong. We still see no fundamental basis for the pound sterling to show growth apart from the technical necessity of occasional corrections.
For December 2, we highlight the following important levels: 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2796-1.2816, 1.2863, 1.2981-1.2987, 1.3050. Senkou Span B (1.2627) and Kijun-sen (1.2625) lines can also be sources of signals. Setting Stop Loss level to breakeven when the price passes 20 pips in the right direction is recommended. The lines of the Ichimoku indicator may move during the day, which should be considered when determining trading signals.
In the UK, the Manufacturing PMI (second estimate) for November is expected to be released, while in the US, the ISM Manufacturing PMI will be published. Of course, the ISM index is much greater in importance and significance.
Illustration Explanations:
- Support and Resistance Levels (thick red lines): Key areas where price movement might stall. Not sources of trading signals.
- Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the H4 timeframe to the hourly chart, serving as strong levels.
- Extreme Levels (thin red lines): Points where the price has previously rebounded. They can serve as trading signal sources.
- Yellow Lines: Trendlines, channels, or other technical patterns.
- Indicator 1 on COT Charts: Reflects the net position size of each trader category.
