Long-term perspective.
The GBP/USD currency pair has been moving very similar to the EUR/USD pair during the current week. However, there are still important differences. First, unlike the euro currency, the pound sterling had specific reasons for growth. Even at the beginning of the week. The fact is that the markets at that time were already confident that the Bank of England rate would be raised to 0.5%. Therefore, we could start working out this tightening in advance. Second, it is no secret to anyone that during 2022 the Bank of England intends to raise the rate at least twice more to bring it to 1%. Third, there were no failed statistics from the UK this week. Therefore, everything here spoke in favor of the fact that the pound should grow. Moreover, the pair had been falling for two weeks before the previous one, so we can say that it was corrected before the new stage of growth. Conclusion: the pair's growth this week is logical. Just as it is logical for the pair to fall on Friday when a strong Nonfarm Payrolls report was released in the US. Of course, the fall of the pair did not begin exactly at the time when the publication was published, but still, on the whole, the fall is logical and reasonable. So it turns out that the pound/dollar pair moved very logically this week. Since the downward trend of 2021 could also end for the pound, we would say that now there is a high probability that both major pairs are starting a new upward trend, which may last a year or two. We also draw attention to the fact that the pound on the 24-hour TF rebounded from the important Fibonacci level of 38.2% - 1.3163. There was no repeated attempt to overcome this level, nor even an approach to this level. Thus, so far everything does not look like a banal upward correction. The Fed, which is going to raise rates at almost every meeting in 2022, can prevent the execution of this option. But, as we have already said, these plans of the Fed have been known for a long time and the markets could have already won them back.
COT analysis.
We would call the latest COT report on the British pound very strange. Professional "Non-commercial" traders increased their short positions during the last reporting week, which led to a new drop in their net position. Now the green line is again below the zero level, which signals the "bearish" mood of non-commercial traders. At the same time, in December 2021, the green and red lines of the first indicator moved far away from each other and therefore began to move towards each other, which signals the end of the trend. Thus, now there is also reasonable to assume that a new, upward trend in the pound has begun. However, the major players are not in a hurry to stock up on the British currency yet, therefore, from the point of view of COT reports, the new upward trend is not entirely unambiguous. The pound may still try to fall again to the level of 1.3163 before starting a new trend. Here, of course, you need to turn to technical analysis, which visualizes everything that is happening in the foreign exchange market. The situation with COT reports is not clear now, so caution is needed when making trading decisions.
Analysis of fundamental events.
The fundamental background for the pound/dollar pair last week was expressed by the meeting of the Bank of England and important macroeconomic reports from overseas. As we have already said, the Bank of England raised the key rate and this was the main event of the week for the British currency. The pound quite logically rose in price on this news and also worked very well on macroeconomic statistics from America. However, the American statistics themselves were not the most "tradable". The ISM business activity indices in the production and services sectors were as neutral as possible. The report from ADP on the change in the number of people employed in the private sector was ignored once again. And only the labor market data on Friday caused the dollar to rise, as the number of new jobs outside the US agricultural sector increased by 467 thousand with a forecast of 110 thousand. Thus, the pound just perfectly worked out the "foundation".
Trading plan for the week of February 7-11:
1) The pound/dollar pair is currently trading "out of technique". Over the past couple of weeks, the price has repeatedly overcome the Kijun-sen and Senkou Span B lines on the 24-hour TF. Therefore, so far they do not allow us to conclude in which direction the movement will continue. Recall that COT reports also do not give an unambiguous answer to this question. Thus, it is advisable to use junior TF in the trade now.
2) The same applies to the prospects of a downward movement. At the moment, the pair is located between the Senkou Span B and Kijun-sen lines, so no conclusion can be made at all now. If the pair goes below Senkou Span B, then the chances of resuming the downward movement will increase. In this case, the bears may try to lead the pair back to 1.3163. But again, it is better now to track trends at the 4-hour TF and below. Moreover, right now on the 4-hour TF, the pair rested against Kijun-sen and Senkou Span B. There is a possibility of an upward rebound.
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.
