On the hourly chart, the GBP/USD pair reversed in favor of the US dollar on Monday, retracing to the corrective level of 127.2% (1.2777). If the pair's exchange rate remains below this level, we can anticipate further downward movement toward the next corrective level of 100.0% (1.2676). However, the ascending trendline, positioned considerably on the chart, continues to support and will maintain a bullish sentiment for an extended period.
Monday and Tuesday lack significant news for the pound and the US dollar. Trader activity is minimal as everyone awaits the crucial events of this week, particularly Jerome Powell's speeches in the US Congress and the outcome of the Bank of England's meeting. These events might disappoint traders themselves. I need help to expect new statements on monetary policy from Powell at this time, given that the FOMC meeting took place just last week, during which Powell summarized and provided insights into future market expectations. In Congress, he will present a report on the performance of his institution and respond to questions. Although the questions might be probing, Powell is likely to follow the intended path and engage in flip-flopping. If the Fed Chair doesn't communicate anything substantial, there won't be much to react to.
The Bank of England's meeting is growing more intriguing. Considering the pound's surge last week, I doubt that traders have already factored in a 0.25% interest rate hike. The decline that commenced this week may continue in this scenario, as the bulls will lack support. However, we must pay attention to the UK inflation report scheduled for tomorrow. Suppose inflation unexpectedly rises or decreases less than anticipated. In that case, the pound may resume its ascent, as it would indicate a need for the Bank of England to raise rates even further.
On the 4-hour chart, the pair consolidated above the corrective level of 100.0% (1.2674) but has already reversed in favor of the US dollar, initiating a decline towards 1.2674. Currently, the RSI indicator indicates a potential bullish divergence, which is highly likely to materialize. However, this week's strong news background may conflict with technical signals, so caution is advised.
Commitments of Traders (COT) report:
During the previous reporting week, the sentiment of "Non-commercial" traders has slightly shifted away from bullishness. The number of long contracts held by speculators increased by 11,320 units, while the number of short contracts increased by 17,069. Although the overall sentiment of major players remains predominantly bullish, the number of long and short contracts is now nearly equal, with 76,000 and 69,000, respectively. The pound has favorable prospects for further growth, and the current news background supports it more than the dollar. However, I don't anticipate a significant surge in the British pound in the coming months. The Bank of England's meeting outcome this week will clarify the pound's outlook.
News calendar for the United States and the United Kingdom:
US - Building Permits (12:30 UTC).
On Tuesday, the economic events calendar only includes one relatively unimportant entry. The influence of the news background on traders' sentiment will be minimal today.
Forecast for GBP/USD and trader advice:
I suggested considering sell positions on the pound if there is a close below the 1.2777 level on the hourly chart, with a target at 1.2676. Buying the pound is now an option if there is a close above the 1.2777 level on the hourly chart, with targets at 1.2860 and 1.2905, or on a rebound from the 1.2676 level with a target at 1.2777.
