Analysis of GBP/USD 5M
On Tuesday, the British pound was marginally lower against the US dollar. Throughout the day, the pair dropped to the level of 1.2693 and the Kijun-sen line, alongside no significant economic data and in the absence of fundamental events. Nevertheless, the US dollar held its ground, and it has a good chance of moving higher in the medium term, which, from our perspective, is the most justified scenario. Moreover, based on the hourly chart, we can't say that the downtrend has resumed. The pair remains above the critical line, and the correction continues. Therefore, for some time, the pound might exhibit chaotic growth with frequent retracements and downward corrections. This is due to the fact that the pound has had no valid reasons to rise for quite some time now.
The first sell signal was formed at the beginning of the European session around the 1.2762 level. After that, the price dropped to the range of 1.2693-1.2711, which it couldn't overcome. Therefore, in this range, it was appropriate to close short positions and open long ones. Afterwards, a buy signal was formed, and the pair managed to move a few dozen pips higher, making the second trade profitable as well. Overall, traders could have earned around 50 pips yesterday, which is a great outcome.
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, but it hasn't broken the downtrend yet. A firm close below the critical line could revive the downward movement, while a close above the Senkou Span B line could point to a continuation of the correction. We believe that there are no grounds for the sterling's growth, so we expect the pair to fall further. Over the past two days, the pair has failed to break through a new level like 1.2786, nor has it managed to fall below 1.2693. For now, the pair is trading within a sideways channel.
On August 9, 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 (1.2805) and Kijun-sen (1.2705) 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 and the US. Tuesday has shown that the pound can trade actively even without any fundamental and economic factors. We can expect the pair to trade between the levels of 1.2693 and 1.2786, with moderate levels of volatility.
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.
