Long-term outlook.
This week saw almost no movement in the GBP/USD currency pair. The quotes slowly decreased in the first half of the week, raising hopes for a long-awaited correction. However, they also grew slowly in the second half of the week. So, the technical situation has remained the same after five trading days. As we've already mentioned, there were few significant macroeconomic and fundamental developments this week, so it's understandable why there weren't any trends or strong movements. It was also a good opportunity for correction, but it did not start over. Although the situation was the opposite a few months ago, the market won't buy the dollar. Only the UK's index of business activity in the services sector, which was essentially unchanged from the previous month, was released this week. Naturally, it received no response. One could only monitor the ISM business activity index in the US, which led to a slight strengthening of the US dollar. The US dollar's growth quickly leveled off, though.
Technically speaking, nothing has altered either. There is no indication that a decline will begin because the price is still above all of the Ichimoku indicator's lines. You can expect a rise in volatility and a change in trend this week because of the meetings of the Bank of England and the Fed. It is, however, very challenging to predict which direction it will go. The market's response to the meetings and the inflation report in America could be almost anything.
As a result, the British pound has increased by almost 2,000 points over the past few months. This growth unquestionably deviates from the fundamental and macroeconomic backdrop that existed simultaneously. Of course, it's also possible that the short trades traders have built up for the past two years result from global profit-taking. Remember that any fundamental hypotheses require specific technical signals to confirm them. It is not advised to test such hypotheses if there are none.
COT evaluation.
The "bearish" sentiment appeared to wane in the most recent COT report on the British pound. The Non-commercial group opened 1,700 buy contracts and closed 7,800 sell contracts for the week. As a result, non-commercial traders' net position has increased by almost 10,000. The net position indicator has been rising steadily over the past few months. However, the major players' outlook is still "bearish." Even though the pound sterling is strengthening against the dollar, it is challenging to explain why from a fundamental standpoint. We must consider the possibility that a new, significant decline in the pound's value will start soon. Also, note that both major pairs are moving almost identically, but the net position for the euro is positive and even suggests that the upward momentum will soon be completed. In contrast, the net position for the pound is negative. A total of 54 thousand contracts have been opened by the group "Non-commercial," along with 30 thousand contracts for purchases. As we can see, the difference is still very significant. In terms of the number of open buy and sell positions, the bulls are ahead by 10,000. While there are technical reasons for this, geopolitics do not support such a strong and quick strengthening of the pound sterling, so we continue to be skeptical about the currency's long-term growth.
Analysis of fundamental occurrences.
This week in the UK, nothing was interesting. The event schedule in the United States was also empty. We can only draw attention to the ISM index, released Monday, as we have already stated. The University of Michigan's consumer sentiment index and producer price index from Friday had no market impact. In general, the market had a great rest before a completely crazy week that included three central bank meetings and the release of a report on US inflation that will heavily influence the Fed's monetary policy. Therefore, the following week will undoubtedly be more exciting and intense than the previous one.
Weekly trading strategy for December 12–16:
1) The pound/dollar pair has technical support for a new long-term upward trend because it is above all of the Ichimoku indicator's key lines. The closest targets are 1.2307 and 1.2759, with 1.2307 already being calculated. We continue to think that a downward correction is required, and that correction will be very evident on the 4-hour TF. However, for this to happen, the pair must at least drop below the moving average on the 4-hour chart.
2) The pound sterling is still forming what appears to be a brand-new upward trend. It now has solid grounds for growth, but it has gained nearly 2,000 points in just two months. How much longer will traders want to keep purchasing? Sales are irrelevant now, but we are still watching for a significant correction near the Senkou Span B line.
Explanations of the illustrations:
Price levels of support and resistance (resistance /support), Fibonacci levels – targets 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 is the net position size of each category of traders.
Indicator 2 on the COT charts is the net position size for the "Non-commercial" group.
