Long-term perspective.
The GBP/USD currency pair has fallen by another 160 points during the current week. This, by the way, is not the worst option, since the volatility showed by the pound/dollar pair practically coincides with the volatility of the euro/dollar pair. And this rarely happens, usually, the pound is traded more volatile. As a result, the price easily overcame the Senkou Span B and Kijun-sen lines this week, so we can assume that it resumed the downward trend. If you remember, we said at the end of last year that we expect an upward movement of 400-500 points, after which the downward trend may resume. This is the nature of the movement observed in the pair in the last 13-14 months, which is visible in the illustration above. The pair will not move like this forever. But it's still moving that way. Thus, in technical terms, we now expect a fall to the previous local minimum of about 1.3162 and, possibly, even overcoming this level. By the way, many probably noticed the difference between the euro and the pound. If the euro currency has already updated its previous minimum, then the pound still needs to go down about 230 points to do the same. However, we recall that next week there will be meetings of the Bank of England and the ECB, and the British regulator has much more chances to change monetary policy, which can provoke a strong movement in the British pound. But strong movements are not expected for the euro currency, as no changes in rhetoric or monetary policy are expected from the ECB. Therefore, if we assume that traders will be disappointed with the results of the BA meeting, then the pound may fall next week and "catch up" with the euro. However, of course, the opposite option is also possible.
COT analysis.
The latest COT reports on the British pound signal only one thing: the end of the downward trend. Thus, we can at least conclude that the downward trend is nearing its end. The green line of the first indicator (the net position of the "Non-Commercial" group) first moved to zero from top to bottom, therefore it went much below the zero mark, and now it has returned to it. In addition, in recent weeks, the green and red lines have been moving towards each other, which signals the end of the trend. In our case, a downward trend. Thus, even if the fall of the British pound continues to the previous low, the trend may still end in the near future. Or, COT reports should again begin to indicate an increase in the "bearish" mood among professional traders. At the moment, COT reports suggest that the mood of the major players remains "bearish", but "minimally bearish", so to speak. The trend is now to strengthen the "bullish" intentions. Thus, we now expect the pound to fall to the level of 1.3162, but this round of decline may be the last.
Analysis of fundamental events.
In principle, everything we said in the article on the euro/dollar is also relevant for the pound/dollar, since there were no important macroeconomic statistics and fundamental events during the week in the UK. A couple of not the most important reports that did not have any impact on traders. In this regard, next week will be much more interesting, as the BA meeting will take place. And, according to the forecasts of many experts, the British regulator may raise the key rate. Naturally, such a decision by BA can provoke a storm of emotions in the foreign exchange market for those pairs in which the pound is present. In the same week, we saw a similar storm of emotions due to the Fed meeting and Jerome Powell's speech. Although, there is reason to assume that the British currency would have continued to fall in any case, even without the "hawkish" meeting of the Fed. For example, the pound sterling collapsed on Monday, when there were no special reasons for this. Thus, we believe that traders are now paying more attention to "technology". And it is based on technical analysis that we can expect a further fall in the pound sterling. In the UK, now it is possible to note only the indices of business activity in the fields of production and services, which decreased in January but did not decrease at all critically. Just a few tenths of a point.
Trading plan for the week of January 31 - February 4:
1) The pound/dollar pair overcame the Kijun-sen and Senkou Span B lines and was ready to form a new upward trend. But it is already below these lines, so we are talking about the resumption of the downward trend, which may also end in the coming weeks/months. Thus, the new overcoming of the Kijun-sen and Senkou Span B lines should significantly increase the probability of growth of the British currency in the medium term. To buy a pair, you need to wait for this signal again.
2) The bears quickly regained the initiative in their own hands. Since the price has overcome the Senkou Span B and Kijun-sen lines, it is now necessary to consider sell orders again with a view to the Fibonacci level of 38.2% (1.3162). It is not a fact that the pound will continue to fall below this level, but it has every chance of reaching it. Next week, the "foundation" will again be of great importance. It can affect the technical picture.
Explanations to the illustrations:
Price levels of support and resistance (resistance /support), Fibonacci levels - target levels when opening purchases or sales. Take Profit levels can be placed near them.
Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).
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.
