On Friday, GBP/USD reversed in favor of the British pound and rose above the Fibonacci retracement level of 423.6% at 1.1304. Today, the pair bounced off this level and is set to recover towards 1.1480. At the same time, consolidation below 1.1304 will support USD and push the quire down to 1.1150 and 1.1000.
Last Friday, traders were digesting the news about Liz Truss's resignation. So, for the second time this year, the UK will have to go through another election for a new prime minister. Liz Truss resigned after just 45 days in office, setting an anti-record for the shortest tenure as UK prime minister. This week, Britain will vote for a new PM, and results will be revealed on Friday. It seems that Rishi Sunak is about to take this role, at least this is how the situation looks like on Monday.
According to the rules, candidates need to garner the support of 100 Tory MPs. At the moment, there are two contenders for the PM role. They should submit their bids by this afternoon. Rishi Sunak has the support of 153 party colleagues out of 357. The second candidate, Penny Mordaunt, is supported by only 25 party members which is not enough to pass the qualifying round. If nothing changes drastically by the end of the day, Rishi Sunak will become the UK's next prime minister. If Mordaunt or any other candidate secures the support of at least 100 party members, they will have to compete with the former finance minister.
Boris Johnson dropped his bid to return to power although he had more support than Penny Mordaunt. However, according to different sources, the former prime minister had the support of 52 to 102 Tory MPs which did not guarantee that he would pass the qualifying round. At the moment, everything points to the fact that Rishi Sunak is likely to become the next prime minister.
On the 4-hour chart, the pair rebounded from the Fibonacci level of 200.0% at 1.1111. It then reversed in favor of the British pound and began to rise towards 1.1496. However, a new bearish divergence may support the greenback and send the pair back to 1.1111. Consolidation of the quote below 200.0% will make the further fall of the pound more likely.
Commitments of Traders (COT) report:
Over the past week, the non-commercial group of traders became more bearish on the pair than the week earlier. Traders closed 8,651 long contracts and added 3,390 short contracts. However, the overall sentiment of large market players remains bearish as short positions still outweigh the long ones. Therefore, institutional traders still prefer to sell the pound even though their sentiment has been slowly changing towards bullish in recent months. However, this is a slow and lengthy process. The pound may continue its uptrend only if supported by strong fundamental data which has not been so favorable lately. I would like to point out that although the sentiment of the euro trades has become bullish, the euro is still depreciating against the US dollar. As for the pound, even COT reports do not favor buying the pair.
Economic calendar for US and UK:
UK - Manufacturing PMI (08-30 UTC).
UK - Services PMI (08-30 UTC).
US - Manufacturing PMI (13-45 UTC).
US - Services PMI (13-45 UTC).
On Monday, both the US and UK will issue the data on business activity indexes. These reports are considered to be of minor importance. So, the impact of the information background on the market sentiment may be weak today.
GBP/USD forecast and trading tips:
I recommend selling the pound when the price closes below 1.1304 on H1 with the targets at 1.1000 and 1.0727. Buying the pound is not advisable today.
