GBP/USD – 24H.
The GBP/USD currency pair has been trading in a sideways channel for most of the past week, as well as in a "swing" mode. The side channel is not clear. However, there is no trend or correction movement at this time. Thus, we believe that it is now flat. In principle, none of the days of the current week gave any doubt to this conclusion. The most exciting thing is that the flat started when the pair almost reached its 3-year highs and stopped just 7 points away from them. But since the bears are extremely weak on the pound/dollar pair, the downward correction has not started in these two weeks. Thus, in general, the conclusions for the pound/dollar pair can be made the same as for the euro/dollar pair. Global fundamental factors continue to work and do not allow the US currency to grow. In addition, I would like to recall the global technical factor, which indicates that both the pound and the euro have recently ended global downward trends. Thus, presumably, global upward trends have begun, which may take 6-10 years.
Consequently, technical factors also speak in favor of further growth of both the euro and the pound. It turns out that wherever you throw it, there is a wedge everywhere. The US currency is supported by fairly strong statistics (the macroeconomic background) and the absence of openly negative fundamental news, as in the UK (for example, Brexit, the "Scottish question," the conflict in Northern Ireland). However, the macroeconomic background now causes only a local impact on the pair, and the fundamental background does not interest traders. Thus, it turns out that those factors that would support the dollar are practically not taken into account by the market. But the "speculative factor" continues to work, which further reduces the probability of a fall in the British currency.
COT report.
During the last reporting week (May 18-24), the GBP/USD pair increased by 10 points (and a week earlier - it decreased by 10 points). However, in general, the pound continues to rise in price, which is visible in any long-term timeframe. Major market players generally increase buy orders, which provides an additional incentive to the British currency. In the reporting week, the group of "Non-commercial" traders (recall, the most important group) opened only 936 buy contracts, but at the same time, closed 4.7 thousand sell contracts. Thus, the net position increased again, by more than 5 thousand contracts, which means much more for the pound than for the euro currency. The mood of professional traders has again become a little more "bullish." However, it is impossible to say that the big players are constantly increasing longs or closing shorts in the medium term. The second indicator in the illustration above, which shows the change in the net position for a group of "Non-commercial" traders, shows that the active build-up of longs by large players began around February. By mid-March, their number began to decline, and since the beginning of April, it is approximately at the same level. Thus, the pound continues to rise in price completely out of proportion to the "bullish" mood of non-profit traders. Therefore, we continue to believe that the pair is much more influenced by the infusion of hundreds of billions and trillions of dollars into the American economy than the actions of significant market players. However, most likely, the effect of these two factors is multiplied by each other, which leads to an even stronger result. In our case, the pound continues to grow when it should have fallen to the 30th figure if the fundamental background from the UK was even slightly taken into account.
No macroeconomic reports were published in the UK this week. Only on Thursday, traders received relatively important information from the Foggy Albion. The representative of the monetary committee, Gertjan Vliege, said that the Bank of England might raise the key rate as early as next year if the economy recovers at a high pace. The pound reacted with growth to this information, but, as we can see, this did not help it much, as the pair remained inside the side channel. Data for the first quarter shows the British economy shrinking by 1.5%. In the second quarter, the economy will begin to recover. However, it is still completely unclear at what pace. Moreover, if anyone is closer to raising rates and tightening monetary policy, it is the Fed, but not the Bank of England. Thus, it is quite possible that the story of the increase in the key rate will be the same as the story of the decrease in the key rate.
Trading plan for the week of May 31 – June 4:
1) The pound/dollar pair continues to be in an upward trend, which resumed about two months ago. Thus, buy orders on the 24-hour timeframe remain relevant, despite the current flat, 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, it is unlikely that the pair will fall in the near future. In any case, until the price is fixed below the critical line, there is no point in talking about a downward movement.
2) Sellers still do not have enough strength to start forming a downward trend. They do not have enough strength even for a tangible correction. Thus, if the price is fixed below the critical line, only then will it be possible to talk about downward movement.
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.
