Long-term perspective.
During the current week, the GBP/USD currency pair showed only one thing: its unwillingness to move. On all five days, the volatility was minimal, and on the 24-hour TF, it can be seen that the price has been between levels 1.2350 and 1.2540 for several weeks already. The upward movement has stopped, but the pound has significant issues starting a downward correction again. Moreover, the last four months' movement can be considered a flat or "swing." Almost all this time, the price has been trapped between levels 1.1840 and 1.2440. Therefore, we do not rule out that this flat is ongoing, and then there will be a new decline back to 1.1840. If you look closely, the previous round of growth also ended this way: reaching 1.2440, a couple of weeks of flat, and a new round of decline. Thus, we still believe that the pair should fall. There are no reasons for the pound's further growth. Macroeconomic statistics in the United Kingdom leave much to be desired, while in the States, they are at a reasonably good level, and the Bank of England may have stopped raising rates at the last meeting. Of course, if the BoE tightens monetary policy by 0.5% in May, it will provoke an increase in the British currency, but what are the chances of seeing such a decision if the regulator has just slowed the growth rate to 0.25%?
There has been a mere inertial movement in recent weeks. The market was buying the pound because it was growing. Such a movement is reminiscent of Bitcoin. However, sooner or later, this "fairytale" must end. The question is just when. This week's macroeconomic statistics from the UK were disappointing, but the pound still did not show any desire to fall. Illogical movements continue.
COT analysis.
According to the latest report on the British pound, the "non-commercial" group closed 1.1 thousand buy contracts and 4.8 thousand sell contracts. As a result, the net position of non-commercial traders increased by 3.7 thousand and continues to grow. The net position indicator has steadily grown for 8–9 months. Still, the sentiment of major players has remained "bearish" during this time (only now can it be called "bullish," but only formally). Although the pound sterling has been growing against the dollar (in the medium term), it is very difficult to answer why it does so from a fundamental point of view. We do not rule out the possibility that a new strong pound decline will begin soon. Both major pairs are moving roughly the same way, but the net position for the euro is positive and even implies the soon completion of the upward impulse, while for the pound, it allows for further growth. The British currency has already risen more than 2100 points, which is a lot, and continuing to grow without a strong downward correction would be illogical. The "non-commercial" group currently has 52 thousand sell contracts and 54 thousand buy contracts open. We remain skeptical about the long-term growth of the British currency and expect its decline.
Fundamental event analysis
In the UK this week, quite a lot of important information was published, most of which did not favor the pound. The unemployment rate rose to 3.8% in February, the number of jobless claims increased by 28 thousand with a forecast of -9.5 thousand, inflation fell only by 0.3%, core inflation remained unchanged at 6.2%, and retail sales decreased by 0.9% month-on-month. That is, all the reports turned out to be worse than forecasts. The pound's only positive aspect could be the weak decline in inflation, which theoretically increases the likelihood of a stronger or more prolonged increase in the Bank of England's rate, which is good for the pound. However, as we have already said, each new CPI report that indicates weak deceleration or its absence no longer means that the rate will increase significantly. The Bank of England has almost exhausted its tightening possibilities, raising the rate 11 times. Inflation remains above 10%. Thus, even this factor does not support the pound. But it remains very high.
Trading plan for the week of April 24-28:
- The GBP/USD pair continues to trade within the sideways channel of 1.1840-1.2440. Thus, short positions remain more relevant now, as the pair is near the channel's upper boundary. The pound may fall by 500-600 points or even more soon, as we did not see a serious correction after the growth in the second half of last year. Although all technical indicators point upward, we do not see any reason for the pound to continue growing.
- As for purchases, they will become relevant once the price consolidates above the 1.2440 level. Even in this case, the growth of the British currency may be weak and long-lasting. The pair has already exceeded the sideways channel, but it did so hesitantly. In general, it is better to trade on smaller timeframes, where more short-term conclusions can be made. The pound is overbought and has no basis for further growth.
Explanations for illustrations:
Support and resistance levels, Fibonacci levels - levels that serve as targets when opening purchases or sales. Take Profit levels can be placed around them.
Indicators: Ichimoku (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).
Indicator 1 on COT charts - the size of the net position for each category of traders.
Indicator 2 on COT charts - the size of the net position for the "non-commercial" group.
