Analysis of GBP/USD 5M

GBP/USD rose more than it fell on Thursday. Recall that for several weeks, we have been expecting the end of the current upward movement, as we believe that there are no fundamental reasons to extend the pair's growth. Yes, from time to time, economic reports provide support to the pound. For instance, Services and Manufacturing PMIs were published in the UK, which turned out to be significantly higher than forecasts. Thus, traders had no choice but to buy the pound again. However, in general, the pound does not have any fundamental and macroeconomic advantage right now. Despite a series of disappointing U.S. reports, the U.S. economy still looks stronger, and the Federal Reserve's interest rate is higher.

Yesterday's trading signals left much to be desired. Most likely, the market was aiming for short positions, but UK PMI data were released, and the price jumped. The first two trading signals around the level of 1.2520 turned out to be false, and it was not even possible to set a stop loss to breakeven. The second signal should have triggered a significant fall if it were not for the PMI data. Instead, we got the third signal around the same level, which should not have been executed. The economic reports spoiled everything instead of helping.

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 closed 6,100 long positions and 10,200 short ones. Thus, the net position of non-commercial traders decreased by another 4,100 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 or in the middle of a strong correction. 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 quite some time.

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 57,500 longs and 73,800 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 continues a corrective trend. Currently, the price cannot even overcome the Kijun-sen line, so there are no technical grounds to expect the pair to fall. On the contrary, the market appears ready to buy despite the fundamental background and the corrective status of the current movement. Therefore, in our opinion, the current upward movement lacks a solid foundation. However, traders have no choice but to follow the market, follow the trend, and consider buying.

As of November 24, we highlight the following important levels: 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, 1.2786. The Senkou Span B (1.2347) and Kijun-sen (1.2508) 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, the UK event calendar is empty, and three business activity reports will be published in the U.S.. It seems that we shouldn't expect significant 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.