On Monday, the GBP/USD pair fell to the lower boundary of the ascending channel on the hourly chart. The trading channel confirms that the sentiment of traders is still bullish. Thus, the change in the market sentiment has not happened yet. However, the euro and the British pound are moving according to the same pattern most of the time. That is why the pound/dollar pair may also consolidate below the channel. In this case, the market sentiment is likely to change to bearish, and traders can count on a further decline toward 1.1411. As for the euro/dollar pair, I expect it to drop by 200-300 pips.
There was absolutely no information background for the British currency in the first two days of the week. Traders may now see the opposite movement to the one seen in the last 3-4 weeks. Most likely, the US dollar was falling because of the rhetoric of some FOMC members, who said they needed to lower the pace of interest rate hikes. The market has already priced this factor in the quotes, and it cannot be the reason for the dollar's sell-off. The Fed rate will still be rising for some time to come. Now the experts and FOMC members say about the increase to 5%. At the same time, Mary Daly admits that the rate can be increased even higher.
Everything will depend on US inflation. If it continues to decline at a fast pace like it did last month, then a 5% rate could be the final station. If inflation slows down erratically or weakly, then there may need to be more tightening than traders and analysts see now. Meanwhile, even weaker tightening is not a reason to sell the US dollar in the long term. The rate will remain high for at least another year. The Bank of England will also continue to raise rates, so some sort of rate balance will form. This balance could also lead to an equilibrium between the British pound and the US dollar.
On the 4-hour chart, the pair rebounded from 1.2008, reversed in favor of the US currency, and started to fall towards the correctional level of 161.8% - 1.1709. The rebound from this level is likely to leave the pound in the game and may allow investors to expect the price to return to 1.2008. If the price fixes below 1.1709, it may continue to fall toward the lower boundary of the ascending trading channel.
COT report:
Last week, the sentiment of non-commercial traders became less bearish than it was the week before. The number of speculators' long positions decreased by 1,931, and the number of short positions shrank by 8,832. The sentiment of the big players remains bearish, and the number of short positions is still much higher than the number of long ones. Thus, the big traders continue to hold short positions on the pound for the most part but their sentiment has gradually been changing to bullish in recent months but this may take a lot of time. It has already been going on for several months. The British pound might continue rising because the graphical analysis and the trend channel support the growth. As for the news background, everything is quite ambiguous because the reports do not support the British currency. Nevertheless, the pair is rising. The market was expecting it for many months but this growth has no solid grounds.
US and UK economic calendar:
On Tuesday, there are no economic reports in the US and the UK. The news background is unlikely to change the market sentiment.
GBP/USD forecast and recommendations for traders:
You may sell the pound if it fixes below the lower boundary of the current trading channel with the target at 1.1411. You may buy the currency with the target at 1.2007 if it rebounds from the lower boundary on the hourly chart.
