GBP/USD on 1H
On the hourly chart, the GBP/USD pair has performed a new fall almost to the retracement level of 0.0% at 1.3603. No rebound followed either from 1.3692, which the quotes managed to reach yesterday evening, or from 1.3603. Thus, traders had no new signals to follow yesterday. Nevertheless, the US dollar advanced last night and then fell today in the early morning. This suggests that the results of the Fed meeting were uncertain. And what should we expect from the Bank of England? Market expectations were very high earlier this week. Everyone assumed that the Fed will announce the immediate tapering of the QE program or at least will define clear timelines. As for the Bank of England, its board members were expected to take a more hawkish stance. Now that investors have already analyzed the Fed's decision, their expectations on the BoE dropped sharply. Usually, the US regulator is the first to start tightening or easing the monetary policy. We should keep in mind that the Fed remains the major central bank that manages the world's dominant currency.
Therefore, other central banks often monitor the changes in the Fed's policy and only then make their own decision. Even amid a robust economic recovery, the Fed does not consider it necessary to tighten its monetary policy. So, the chances that the Bank of England will decide to take this step are very low, especially given UK's modest growth indicators. Besides, the number of new coronavirus cases continues to surge in the UK although most of the adult population has already received both vaccine shots. Moreover, this fall, the UK government stops the employment program which is estimated to have saved about 11 million jobs during the pandemic. As state support is coming to an end, the unemployment rate is likely to increase. Consequently, the regulator will need to see the reaction of the labor market first and only then consider rolling back the stimulus program. Thus, I do not expect any changes from the Bank of England today, which may negatively affect the British pound.
GBP/USD on 4H
The GBP/USD pair has completed the fall to the 0.0% retracement level on the small Fibonacci grid on the 4-hour time frame. However, yesterday's movement of the pair was not of a technical nature, so it can be ignored. Yesterday, the pair was trading based on the results of the Fed meeting. Today, trading will be based on the outcome of the BoE meeting. Therefore, there may be no graphic signals at all. Also, the price direction changed sharply several times yesterday, and this can happen today as well.
Economic calendar for USA and UK:
UK - Manufacturing PMI (08-30 UTC).
UK - Services PMI (08-30 UTC).
UK – BoE decision on the key interest rate (11-00 UTC).
UK - Asset Purchase Facility (11-00 UTC).
UK - MPC Official Bank Rate Votes (11-00 UTC).
UK - MPC Asset Purchase Facility Votes (11-00 UTC).
UK - Monetary Policy Summary (11-00 UTC).
US - Number of initial and continuing jobless claims (12-30 UTC).
US - Services PMI (13-45 UTC).
On Thursday, the UK economic calendar is full of important events. In addition to the policy meeting of the Bank of England, business activity indices will be released just like in the US. However, all the focus today will be on the meeting of the UK regulator and its outcome. The news background will be strong today.
COT (Commitments of traders) report:
The latest COT report from September 14 showed that major market players became much more bullish on the pound. During the reporting week, speculators opened 14,796 Long contracts and closed 14,526 Short contracts. Thus, the balance of power between bulls and bears has changed dramatically. Now, bulls are holding more contracts (45,673) while bears have 39,296 contracts open. A week ago, the situation was the opposite. Thus, despite the pound's decline over the last week, it still has a good chance of rising sharply after the latest COT report. We should also note that the commercial category of traders got rid of 66,000 Long contacts and 33,000 Short contracts. That is, the total number of contracts in their hands fell by a third in a week.
Outlook for GBP/USD and trading tips:
I recommend opening long positions on the pound after the price rebounds from the level of 1.3603 or 1.3572 on the hourly chart with the target at 1.3692. It is better to open short positions if the price completes a rebound from the level of 1.3692 or 1.3731 with the targets at 1.3603 and 1.3572. Please note that traders can ignore all key levels at the time when the results of the BoE meeting are announced.
Definitions:
Non-commercial traders are large market players, including banks, hedge funds, investment funds, private, and large investors.
Commercial traders are commercial enterprises, firms, banks, corporations, companies that buy currency not to obtain quick profit, but to ensure current activities or export-import operations.
Non-reportable category of traders refers to small speculators who do not have a significant impact on the price
