Analysis of GBP/USD 5M
GBP/USD traded lower throughout Thursday. All the European reports, which were published in the morning and had no relation to the pound, exerted downward pressure on the euro. Both currencies often move in tandem. And this also applies here, but the pound fell much softer than the euro. Nonetheless, a decline still took place. The US economic reports turned out to be completely neutral. Almost all reports (personal income and spending, personal consumption expenditure index, unemployment benefit claims) matched the forecasted values by 90%. At the start of the US session, there were no sharp movements. On the contrary, by the end of the day, the pair was in a restricted price range, close to being flat.
There were also few trading signals yesterday. During the European session, the price overcame the 1.2693-1.2707 area, falling by about 15 pips, then it returned to the mentioned area, bounced off it, and descended another 25-30 pips, without reaching the nearest target – the critical line. Therefore, traders could earn about 20 pips from these two signals. Since the first trade was still open at the time of the second signal, it should have remained open. Since there were no buy signals, short positions should have been closed manually in the evening.
COT report:
According to the latest report, the non-commercial group of traders opened 7,500 long positions and closed 600 short ones. Thus, the net position of non-commercial traders increased by 8,100 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. Slowly, sell signals are emerging 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 last year, 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 98,000 long positions and 38,900 short ones. I remain skeptical about the long-term growth of the pound sterling, and the market has recently begun to pay attention to short positions.
Analysis of GBP/USD 1H
On the 1H chart, the pound/dollar pair started to correct higher. The price continues to stay above the Ichimoku indicator line, which means that we can still expect the pound to continue its upward movement. The macroeconomic and fundamental background is not that crucial for the mid-term movement, as the market has long since processed all the bullish factors for the pound. However, with four important reports set to be released on Friday, we can expect the pound sterling to move in any direction.
On September 1, traders should pay attention to the following key levels: 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2693, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2672) and Kijun-sen (1.2653) 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 Friday, the UK will release its Manufacturing PMI in its final estimate for August. Meanwhile, at least four crucial reports will be published in the US, which can significantly influence market sentiment and provoke substantial movements.
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.
