Analysis of GBP/USD 5M
On Thursday, the GBP/USD pair showed movement that closely resembled a flat. Although the British pound traded slightly higher by the end of the day, it was a conditional growth at best. On the hourly chart, it's clear that it recently ended a downward movement. This suggests that the pair could rise, and even climb up to the 1.2269 level. The British pound doesn't necessarily need strong news or events for this kind of movement. Initially, we mentioned that the pound is in need of a corrective phase, and it is currently undergoing one, although it's mostly sideways movement. The Bank of England's meeting could have sparked sharp movement, but it was unable to take the pair out of the flat. No important decisions were made.
There were several trading signals generated on Thursday, but they weren't the best. The first sell signal turned out to be a false signal, and the pair couldn't even fall by 20 pips. The trade closed with a small loss. The next buy signal pushed the pair to rise to the 1.2215 level. Long positions could have been closed with about a 15-pip profit. This was followed by a rebound from 1.2215 and a drop back to the Senkou Span B, which resulted in another 15 pips in profit. You might think we had two profitable signals, but the overall profit barely covered the loss from the first trade. Why? Because during the European and U.S. sessions, volatility was just 70 pips...
COT report:
COT reports on the British pound also align perfectly with what's happening in the market. According to the latest report on GBP/USD, the non-commercial group opened 1,500 long positions and 9,000 short ones. Thus, the net position of non-commercial traders decreased by another 7,500 contracts in a week. The net position indicator has been steadily rising over the past 12 months, but it has been firmly decreasing over the past three months. The British pound is also losing ground. We have been waiting for many months for the sterling to reverse downwards. Perhaps GBP/USD is at the very beginning of a prolonged downtrend. At least in the coming months, we do not see significant prospects for the pound to rise, and even if we're currently witnessing a corrective phase, it could persist for several months.
The British pound has surged by a total of 2,800 pips from its absolute lows reached last year, which is an enormous increase. Without a strong downward correction, a further upward trend would be entirely illogical (if it is even planned). We don't rule out an extension of an uptrend. We simply believe that a substantial correction is needed first, and then we should assess the factors supporting the US dollar and the British pound. A correction to the level of 1.1844 would be enough to establish a fair balance between the two currencies. The non-commercial group currently holds a total of 67,100 longs and 85,800 shorts. The bears have been holding the upper hand in recent months, and we believe this trend will continue in the near future.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD is trying to correct higher. The pair consolidated above the Ichimoku indicator lines, but these lines are weak in a flat market, so the pound could easily drop below them by today, especially since the macroeconomic background will be strong, and market reactions could go either way. We advise that you assume that the market is flat at the moment.
As of November 3, we highlight the following important levels: 1.1760, 1.1874, 1.1927-1.1965, 1.2052, 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2693. The Senkou Span B (1.2177) and Kijun-sen (1.2156) lines can also be sources of signals. Signals can be "bounces" and "breakouts" of these levels and lines. It is recommended to set the Stop Loss level to break-even when the price moves in the right direction by 20 pips. The Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. The illustration also includes support and resistance levels that can be used to lock in profits from trades.
On Friday, there are no significant events lined up in the UK. Market participants will monitor crucial reports from the U.S. and that's why you should be braced for sharp price twists at that time. However, the pair is currently in a flat, and even rising by 70-80 pips from the current levels won't necessarily end it.
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.
