Analysis of GBP/USD 5M
GBP/USD extended its downward movement on Monday. The UK's services and manufacturing PMIs turned out to be weaker than expected (although it was not as disappointing as those of Germany or the EU), putting pressure on the British currency. Over the past couple of weeks, we noticed that the pound's fall has not been crucial. Take note that the British currency has sharply grown over the past 10 months, which now calls for further downward movement. However, at the moment, on the hourly chart, the price has descended to a trendline that has maintained an uptrend all this time. Therefore, failure to break this trendline might quickly bring the bulls back into the market and push the pound back into an upward trajectory.
The US also released its own PMIs yesterday, but it showed mixed results, unlike the European or British ones. For example, the manufacturing sector unexpectedly rose to 49 points, while the services sector declined. The US dollar slightly grew on this information, but it is worth noting that the US data turned out to be better than those in the UK.
Speaking of trading signals, there were two entry points on Monday. During the European trading session, the pair initially settled above the level of 1.2663 and then below it. It was at this time that the British PMIs were published. The first long position did not bring profits and closed at a loss of about 30 pips. The second trade was open until late evening and there were no signals after that. It had to be closed manually, and the profit was also around 30 pips.
COT report:
According to the latest report, the non-commercial group of traders opened 23,600 long positions and 17,900 short ones. Thus, the net position of non-commercial traders rose by 5,700 positions in a week. It continued to rise. The net position has been steadily growing over the past 10 months as well as the pound sterling. Now, the net position has advanced markedly. This is why the pair will hardly maintain its bullish momentum. I believe that a long and protracted downward movement should begin. COT reports signal a slight growth of the British currency but it will not be able to rise in the long term. There are no drivers for opening new long positions. However, there are no technical signals for short positions yet.
The British currency has already grown by a total of 2,800 pips. Without a downward correction, the continuation of the uptrend will be illogical. The Non-commercial group of traders has opened 135,200 long positions and 71,500 short ones. I remain skeptical about the long-term growth of the pound sterling but speculators continue to buy because the pair is growing.
Analysis of GBP/USD 1H
On the 1H chart, the pound/dollar pair maintains an uptrend. It fell below both lines of the Ichimoku indicator for the past two weeks. The market has yet to shift to a completely bearish state since the ascending trendline remains relevant. Therefore, the pair can still rise at any moment. In order to support further bearish movement, it is necessary to break the trendline and remain below the Ichimoku lines.
On July 25, traders should pay attention to the following key levels: 1.2598-1.2605, 1.2693, 1.2762, 1.2863, 1.2981-1.2987, 1.3050, 1.3119, 1.3175, 1.3222, 1.3273. The Senkou Span B line (1.2906) and the Kijun-sen line (1.2968) lines can also provide signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits.
On Tuesday, there are no important reports or events lined up in the UK and the US. Therefore, we might witness an extension of Monday's movements, with frequent price reversals and low volatility.
Description of the chart:
Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;
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 is the net position size for each category of traders;
Indicator 2 on the COT charts is the net position size for the Non-commercial group.
