GBP/USD - 24H.
The GBP/USD currency pair has been in an upward movement for most of the past week. On Monday, the pair rose very strongly. Then on Wednesday, it fell heavily. And on Friday, it resumed growth. The price is already approaching its three-year highs, which is not in line with the fundamental background. As we have said, the UK economy continues to experience many problems, and it contracted by 1.5% instead of recovering in the first quarter of 2021. The American one added 6.4%. In addition, the UK has a whole bunch of problems of a geopolitical nature. The pound fell in 2016-2020 because of such issues. However, at this time, all these problems do not interest traders and are entirely unable to cover the fundamental global factors that support the pair. Recall that the fundamental and macroeconomic background can be anything. However, if market participants purposefully continue to buy the pound, and the Fed prints trillions of dollars and saturates the economy with them, it will be the pound that will become more expensive whatever the foundation in the UK. It is what we have seen for more than a year. The British currency continues to grow when its real exchange rate is not above the level of $1.30. The "speculative factor" continues to work, as well as the factor of pouring huge sums into the US economy. Therefore, the pound may fall locally against the background of any statistics. It may be in the "swing" mode for months. However, it is unlikely that anyone will argue that the global upward trend persists. In technical terms, the price continues to be located above all the key lines of the Ichimoku indicator, so there are no questions about the direction of the trend and its presence at this time.
COT report.
During the last reporting week (May 4-10), the GBP/USD pair increased by 210. Last Friday, traders got rid of the dollar due to the weakest Nonfarm. Starting in January 2021, professional traders began to try to stick to the main trend, since before that, they were constantly changing their strategy for working with the pound. The first indicator in the illustration shows that the red and green lines began to move away from each other around January, which indicates a new trend, which is the old trend of 2020. Nevertheless, the "Non-commercial" group is currently increasing its net position, increasing purchases of the pound, which look groundless, from a fundamental point of view. But what if the pound is growing, and non-profit traders just set their goal to earn money at the expense of the exchange rate difference? In the reporting week, 15 thousand buy contracts and 6 thousand sell contracts were opened for the pound.
Consequently, the net position increased by 9 thousand contracts. The total number of open buy positions is now 68 thousand and sell – 38 thousand. The difference is almost two times, which indicates a moderate "bullish" mood of professional players. As in the case of the euro currency, we pay attention to the fact that at this time, more global factors than the actions of major players, which usually set the direction of the trend, overlap the data of COT reports. However, COT reports now also speak in favor of continuing the growth of the British currency.
Several important reports were published in the UK during the current week, which the markets did not work out. In Britain, all the statistics were published on Wednesday, but the report on US inflation was also published on the same day. On the chart of the pair, it is easy to see that the British statistics did not cause almost any market reaction, but the inflation report ultimately led to the pair's fall, although it would be more logical to do the opposite. Nevertheless, we can not, but state that the British GDP has declined, and no more important data from the Foggy Albion has been received. During the week, there were several speeches by the head of the Bank of England, Andrew Bailey. However, he spoke more about cryptocurrencies and the creation of the digital pound than about the economy and monetary policy of BA. Thus, the pound has nothing to do with the data and the weakness of the British economy, nor the geopolitical problems, nor the fact that the Bank of England is completely unprepared for the curtailment of monetary stimulus. Most likely, the Fed will be the first to tighten monetary policy, and even then, it will not happen soon.
Trading plan for the week of May 17-21:
1) The pound/dollar pair continues to be in an uptrend, which it resumed about a month ago. Thus, buy orders remain relevant, and the nearest targets are the previous local high of 1.4240 and the resistance level of 1.4332. Given that global factors are now supporting the pound sterling, it is unlikely that the pair will fall in the near future. Recall that as part of the upward trend, which began in March 2020, the pound has already increased by 28 cents, and the maximum correction was 5.5 cents (550 points).
2) Sellers still do not have enough strength to start forming a downward trend. They don't even have the strength to correct it. Thus, if the price is fixed below the critical line, it will be possible to talk about some downward movement. Not earlier.
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced before.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.
