Long-term perspective.
The currency pair GBP/USD showed another round of illogical growth during the current week. No macroeconomic reports were published in the UK throughout the week, and no speeches by the Bank of England representatives. It is reasonable to assume that the news from the US was disappointing. And at first glance, this is indeed the case. At the beginning of the week, US Treasury Secretary Janet Yellen raised panic in the market by once again stating that the debt ceiling should be raised; otherwise, an "economic catastrophe" could occur, and all economic growth after the pandemic would be leveled. It seems America needs more funds to finance all state institutions and social payments. However, Congress decided to raise the limit by $1.5 trillion the next day, so the problem was resolved quickly. In any case, this is not even a problem, as the debt ceiling in the United States is raised every six months to a year. There is nothing new about it.
Furthermore, the US GDP in the first quarter was only 1.1%, with a minimum forecast of +2.0%. Again, this is a problem. However, on Thursday, when the report was published, the dollar slightly increased. It means that traders are interested in something other than the growth rates of one economy or another. They are only interested in the central bank's rates and may not even influence the pair's movement, as the movement now resembles an inertial one, similar to Bitcoin. In other words, the euro and the pound may grow because they grow. Traders buy these currencies on a speculative basis. If an asset grows, it should be bought to make a profit.
Technically, the pair was in a sideways channel for three months, then left it, and now it is slowly moving upward. We still need to see a normal correction on the 24-hour timeframe. It is challenging to say how much longer the pound will crawl up, as there are no grounds for this.
COT analysis.
According to the latest report on the British pound, the "non-commercial" group opened 5.6 thousand buy contracts and 1.0 thousand sell contracts. As a result, the net position of non-commercial traders increased by 4.6 thousand and continues to grow. The net position indicator has steadily grown for 8–9 months. Still, the sentiment of major players remained "bearish" during this time (only now can it be called "bullish," but this is purely formal). Although the pound sterling is growing against the dollar (in the medium term), it is very difficult to answer why it is doing so from a fundamental point of view. We do not exclude the possibility that the pound will fall sharply soon. Both major pairs are moving roughly the same now. Still, the net position for the euro is positive and even implies the imminent completion of the upward impulse, while for the pound, it allows for further growth. The British currency has already grown by more than 2100 points, which is a lot, and with a strong downward correction, the continuation of growth will be completely logical. The "non-commercial" group now has 53.5 thousand sell contracts and 59.5 thousand buy contracts open. We remain skeptical about the long-term growth of the British currency and expect its decline.
Fundamental event analysis.
There was no important news in the UK this week. All the most interesting things came from across the ocean. The most interesting movement was observed on Friday, when the dollar fell 120 points within a few hours. It could be assumed that important statistics were published in the US then. Is this the case? Reports on personal income and spending of the American population were published. The first indicator grew by 0.3% (in line with forecasts), and the second by 0%, slightly higher than forecasts. Thus, both of these reports could not provoke the dollar's fall. The Personal Consumption Expenditures index was 0.3% m/m, in line with expert forecasts. The University of Michigan Consumer Sentiment Index was 63.5 points, with a forecast of 63.5 points. That is, there was nothing to react to, even if desired. Nevertheless, the market again interpreted the data received as it wished, and the dollar fell again.
Trading plan for the week of May 1–5:
- The pound/dollar pair has left the sideways channel of 1.1840–1.2440. Despite this, short positions are still more relevant, as the pair is overbought. Without sell signals, we certainly do not recommend opening short positions, but 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. We do not see any basis for the pound to continue growing, although all technical indicators are pointing upward.
- As for purchases, they can be considered now. However, we advise trading on the rise only in the short term, preferably intraday. We still believe that there is a great danger of the British currency collapsing. Even if this does not happen, hedging and trading more modestly and cautiously after a 2100-point increase is better.
Explanation of illustrations:
Support and resistance price levels, Fibonacci levels - levels that serve as targets when opening purchases or sales. Take Profit levels can be placed around them.
Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).
Indicator 1 on the COT charts - the size of the net position for each category of traders.
Indicator 2 on the COT charts - the size of the net position for the "Non-commercial" group.
