On the 1-hour chart, GBP/USD dropped to the Fibonacci retracement level of 127.2% at 1.2111 and rebounded from there. Although a rebound is considered a buy signal, the pound has been recently trapped between the levels of 1.2111 and 1.2238. So, a rebound from 1.2111 may send the price up by 80-90 pips since the pound is more volatile than the euro. However, under current conditions, traders are unlikely to continue selling the sterling. The information background was absent on Monday and Tuesday. Besides, this weekend, the West will celebrate Christmas which means that Friday will be a very slow trading day. This week has 2 or 3 significant macroeconomic events at most. However, even these reports can be downplayed by the market ahead of the holidays. The same can be true for the GDP report in the UK that is due to be out on Thursday.
It is already a fact that the UK economy has entered a recession. So, the release of the GDP data is unlikely to support the pound. Traders expect to see a contraction of 0.2%. This is just the beginning of the economic downturn and it will probably get worse. Therefore, there are currently no reasons for the pound to grow.
I don't expect any strong movement this week amid the lack of fundamental news and the approaching holiday season. These factors can keep the pair in a flat channel for some time. Of course, if you get a strong signal, you can open trades. A rebound from 1.2111 or a close below 1.2111 may serve as such a signal. However, you should be ready to see a slow movement even though the signal is strong.
The pair settled firmly below the Fibonacci retracement level of 127.2% at 1.2250 on the 4-hour chart after the MACD indicator had formed a bearish divergence. The quote may continue to fall toward the lower boundary of the channel. Consolidation below it will make the further decline of the pound more likely. A rebound from this level will allow the pair to develop a stronger uptrend toward the retracement level of 100.0% at 1.2674. But actually, the pair may stay flat for the rest of the week.
Commitments of Traders (COT) report
Last week, the non-commercial group of traders became less bearish on the pair than a week ago. The number of long contracts rose by 3,469 while short contracts increased by 1,015. Overall, large market players maintain a bearish outlook for the pair as short contracts still outweigh the long ones. Therefore, institutional traders still prefer to sell the pound although their sentiment has been slowly shifting toward bullish in recent months. Yet, this process is taking too long to develop. It has been going on for several months already. Still, the number of short positions is twice as high as the long ones. Based on the chart analysis, we can assume that the pound may continue to rise. For instance, the trend channel on the 4-hour chart confirms this scenario. However, the pound is not so strong from the fundamental point of view. Besides, the US dollar also has its drivers. Nevertheless, we can observe a long-awaited uptrend.
Economic calendar for US and UK:
On Tuesday, no important events are expected either in the US or the UK. The same will be true for the rest of the week. Therefore, the influence of the information background on the market will be zero today.
GBP/USD forecast and trading tips:
I recommend selling the pound with the targets at 1.2007 and 1.1883 if the price settles below 1.2111 on the 1-hour chart or below the trend channel on the 4-hour chart. You can buy the pound after a rebound from 1.2111 with the target at 1.2238.
