Long-term perspective.
The GBP/USD currency pair has increased by 150 points during the current week. Thus, a new upward correction has begun. We have already said that the pound sterling is adjusted quite often and at the same time becomes cheaper against the dollar much less willingly than the euro currency. At the moment, the pound has adjusted against the dollar by only 42-43% of the upward trend of 2020. At the same time, the euro currency adjusted by more than 90%. Thus, no matter how the pound has fallen in recent weeks, it still shows twice as high resistance to the dollar compared to the euro. The current correction can also be quite deep, like all the previous ones. This week, there were two important events at once that the pound could not ignore. The meetings of the central banks of the United Kingdom and the United States were almost identical in their results. Both banks raised the key rate by 0.25%, both banks expressed serious concern about high inflation, both banks assumed that inflation would continue to rise and showed readiness to continue tightening monetary policy. Thus, it cannot be concluded that following the results of this week, the pound or the dollar should have risen in price. In the euro/dollar review, we said that "technology" could have crossed out the "foundation" this week. Most likely, this statement is also true for the pound/dollar pair. Geopolitics has begun to ease its pressure on risky currencies and instruments a little, thanks to which bitcoin has grown a little, and the US stock market, and the euro and the pound. However, so far we are talking only about another correction, and not about an upward trend.
COT analysis.
The latest COT report on the British pound showed an increase in the "bearish" mood among professional traders. However, in general, the mood of the major players has changed too often in recent months, which is seen by the two indicators in the illustration above: they are constantly changing the direction of their movement. At the moment, the number of open purchase contracts is less than the number of sale contracts by almost 30 thousand. Although two weeks ago their number was almost the same. Earlier, we concluded that the major players could not make a decision regarding the British pound, but we also drew attention to the fact that with the complication of the geopolitical situation, the demand for the US currency grew very much, which could "cross out" the data of the COT reports. However, the current picture of what is happening in the foreign exchange market is already beginning to correspond to the COT reports. Thus, the pound may now be at the beginning of a new round of decline. But, since in recent weeks it has only been falling, now another upward correction may follow, and then everything will depend on the geopolitical background. Like the mood of traders, the market situation can change rapidly. A month ago, few people believed that an armed conflict could break out in the center of Europe on a huge territory. Therefore, you need to be prepared for everything, and use COT reports only as an additional factor of assessment and forecasting.
Analysis of fundamental events.
The fundamental background in the UK and the US was very strong this week. A meeting of the Bank of England, a meeting of the Fed, reports on unemployment and wages in Britain, and a few more secondary reports in the United States. Of course, all the attention of traders was focused on the meetings of the two Central Banks. However, we cannot say that the reaction to these meetings and their results was unambiguous and logical. Most likely, the market has already developed a certain trading strategy and does not intend to change it due to isolated events. In principle, the pound began to adjust at the beginning of the week, so it was busy with this all week. Plus, both central banks made similar decisions, so it was difficult to give the advantage to the dollar or the pound. Thus, we believe that at this time "technology" and geopolitics play a greater role. Unfortunately, geopolitics is very difficult to predict, so you will have to rely more on "technology".
Trading plan for the week of March 21-25:
1) The pound/dollar pair has started to adjust, but so far the correction is quite weak. Now the key level for the pair is 1.2829 (50.0% Fibonacci), on overcoming or overcoming which the prospects of the pound depend. However, it still needs to be reached. So far, the pair has targeted the critical Kijun-sen line. If it is not overcome, then the fall of the British currency will resume with the goal indicated above.
2) But the prospects for an upward movement have deteriorated significantly and so far there is not a single reason to buy the pound. This is indicated by the technique since even during the last round of growth, the price failed to update its previous local peak. That is, it was just a strong round of correction, after which the main movement resumed. And the departure of quotes below the previous local minimum indicates just the preservation of the downward trend. Therefore, purchases are not relevant now.
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.
