Analysis of GBP/USD 5M

GBP/USD continued to trade with clear negativity on Thursday. There were quite specific reasons for this, and this time they're even stronger than when the Federal Reserve meeting took place on Wednesday, the results of which can be considered "neutral." However, the results of the Bank of England meeting could be called both unexpected and dovish at the same time. After 14 consecutive interest rate hikes, the British central bank kept its key policy rate steady for the first time. This comes after the central bank unexpectedly accelerated the pace of monetary tightening just two meetings ago. But as we can see, the BoE also has its limits, so it had to pause even if it's dealing with persistently high inflation. As we can see, this "pause" at such an inopportune moment caused the pound to take another plunge.

It doesn't make much sense to discuss Thursday's trading signals. All the signals were formed around the 1.2269 level and this was when the Bank of England announced the results of its meeting. It was quite risky to open trades during that time. The only signal that traders could execute had appeared at the beginning of the US trading session when the pair settled above the 1.2269 level. Traders could have made about 10-15 pips on a long position as by that time, all major movements had already concluded. The movements over the past two days have been quite chaotic, making it challenging to trade even for experienced traders.

COT report:

According to the latest COT report on GBP/USD, the Non-commercial group has 4,700 long positions and 4,900 short positions. Thus, the net position of non-commercial traders decreased by 200 contracts over the week. The net position indicator has been steadily increasing over the past 12 months and remains high, while the British pound is still not in a hurry to fall sharply. However, the pound sterling has started to fall in the last two months. If the pound had been rising for a year before, why should it start to fall rapidly now? Perhaps we are at the very beginning of a protracted downtrend.

The British currency has jumped by a total of 2,800 pips from its absolute lows reached last year. All in all, it has been a stunning rally without a strong downward correction. Thus, further growth would be utterly illogical. We're not against the upward trend. We just believe GBP/USD needs a good downward correction first and then assess the factors supporting the dollar and the pound. The Non-commercial group currently holds a total of 97,400 longs and 51,100 shorts. We remain skeptical about the long-term growth of the British currency, as we do not see any fundamental and macroeconomic reasons for it.

Analysis of GBP/USD 1H

On the 1H chart, GBP/USD continues its weak downward movement, losing ground almost every day. The pound sterling is still poised to decline and can't correct upwards. Both central bank meetings weighed on the pound, and it's just as we mentioned. This turn of events seems entirely reasonable. Therefore, we believe that the pound may very well sink even lower.

On September 22, traders should pay attention to the following key levels: 1.2188, 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2693, 1.2786. The Senkou Span B line (1.2477) and the Kijun-sen line (1.2329) 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, EU, and the US will release Manufacturing and Services PMI data. In addition, the UK will also publish a report on retail sales. These reports are not crucial, but they may be sufficient to stir some market reaction.

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.