Analysis of GBP/USD 5M
GBP/USD spent almost the entire Wednesday in a flat range. There were hardly any significant events yesterday, but the speech by Bank of England Governor Andrew Bailey could have triggered a stronger movement in the pair throughout the day. Bailey practically said that there is no need to expect another rate hike since inflation is decreasing, and the effects of the previous rate hikes have not fully materialized. Therefore, the BoE currently has no need to raise the key interest rate. Naturally, such information was expected to disappoint the bulls, and it did so in the end. However, they seemed to have pondered their new strategy for a bit too long. Nevertheless, the British pound started to fall, in line with our expectations and forecasts. This is a good thing, as the pound has often shown movements in recent years that are quite difficult to justify or explain.
Since the pair spent almost the entire day in one place, one could expect either a complete absence of signals or numerous false signals. However, in reality, we saw something different. The pair spent almost the entire day in the range of 1.2589-1.2620 and only managed to leave it late in the evening. Therefore, only one signal was formed, and it was quite inconvenient to act on it because it appeared late at night. Traders who managed to open short positions are currently in profit. There is no need to rush to close the shorts, as the pound may continue to decline today.
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 18,000 long positions and closed 200 short ones. Thus, the net position of non-commercial traders increased by another 18,200 contracts in a week. The net position indicator has been steadily rising over the past 12 months, but it has been firmly decreasing since August. In recent weeks, the pound has traded higher, and large players are gradually increasing their long positions. However, we still believe that the pound will start a pronounced downward movement.
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 61,300 longs and 69,200 shorts. In general, there is currently a balance between bulls and bears.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD is gradually starting to move downwards, which is the most logical scenario. We still expect the pound to fall and consider it excessive and illogical for the pair to continue its upward movement. The pair has breached the Ichimoku indicator lines, so we can expect the downward movement to continue. The British pound remains overbought.
As mentioned, we can expect the pair to fall further. GBP/USD has surpassed all the important levels and Ichimoku lines, so the downward movement should persist. The situation on Friday may be somewhat different due to important US reports, which could fuel the dollar's fall. But today, we are only looking downwards.
As of December 7, 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, 1.2726, 1.2786, 1.2863. The Senkou Span B (1.2589) and Kijun-sen (1.2633) 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 Thursday, there are no important or interesting events lined up in the UK. From the US, we can expect a standard report on jobless claims, which could provoke a market reaction only in the case of a significant deviation of the actual value from the forecast. Nothing should hinder the dollar's growth today.
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.
