M5 chart of GBP/USD
On Thursday, GBP/USD also showed high volatility and "flew" in different directions. Basically, at the end of the day, we can say that the pound's growth was logical and justified since US inflation continues to decline and is already at 6.5%. Of course, it is still far away from 2%, but the index is confidently moving towards this target and can reach it as early as in 2023. Thus, the Federal Reserve may start to cut rates as early as this year, although several members of the Monetary Committee said that rates will remain high throughout this year. All of these factors together mean only one thing: the Fed will continue to slow down the pace of monetary tightening. But we can't say the same about the Bank of England. There are serious concerns that the BoE will not be able to raise rates "to the bitter end," but so far the British central bank is expected to tighten more in 2023 than the Fed.
Speaking of trading signals, yesterday's situation was very complicated, as the pair sharply changed its direction during the US trading session, and there was only one signal in the European session - a bounce from 1.2185. This signal could have been taken by a short position, but it had to be closed manually before the inflation data was released. The profit on it was about 35 pips. Further we should think about entering the market only after the second rebound from 1.2106, when traders calmed down more or less and "digested" the latest information. After this signal, the pair showed another movement of 100 points, so traders could get a good profit, wherever they closed the long. You shouldn't have traded in the first couple of hours after the report was released.
COT report
The latest COT report showed an increase in bearish sentiment. During the given period, non-commercial traders opened 3,000 long positions and as many as 12,400 short positions. Thus, the net position fell by about 9,400. This figure has been on the rise for several months, and the sentiment may become bullish in the near future, but it hasn't yet. Although the pound has grown against the dollar for the last few months, from a fundamental perspective, it is still difficult to answer why it keeps rising. On the other hand, it could fall in the near future (in the mid-term prospect) because it still needs a correction. In general, in recent months the COT reports correspond to the pound's movements so there shouldn't be any questions. Since the net position is not even bullish yet, traders may continue to buy the pair over the next few months. Non-commercial traders now hold 43,600,000 long positions and 63,900 short ones. I remain skeptical about the pound's long term growth, though there are technical reasons for it. At the same time, fundamental and geopolitical factors signal that the currency is unlikely to strengthen significantly.
H1 chart of GBP/USD
On the one-hour chart, GBP/USD rose sharply, tried to correct, and increased again. At this time, a new uptrend may emerge, but there is no trend line or channel at this time. On January 13, the pair may trade at the following levels: 1.1874, 1.1974-1.2007, 1.2106, 1.2185, 1.2259, 1.2342, 1.2429-1.2458. The Senkou Span B (1.2023) and Kijun Sen (1.2162) lines may also generate signals. Pullbacks and breakouts through these lines may produce signals as well. A Stop Loss order should be set at the breakeven point after the price passes 20 pips in the right direction. Ichimoku indicator lines may move during the day, which should be taken into account when determining trading signals. In addition, the chart does illustrate support and resistance levels, which could be used to lock in profits. On Friday, the UK will release its GDP (monthly) and Industrial Production reports. In the US, we only have the Consumer Sentiment Index. You should focus on the British GDP but it is hard to call that report important as well. Nonetheless, some market reaction should follow.
What we see on the trading charts:
Price levels of support and resistance are thick red lines, near which the movement may end. They do not provide trading signals.
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, moved to the one-hour chart from the 4-hour one. They are strong lines.
Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals.
Yellow lines are trend lines, trend channels, and any other technical patterns.
Indicator 1 on the COT charts reflects the net position size of each category of traders.
Indicator 2 on the COT charts reflects the net position size for the non-commercial group.
