On the hourly chart, the GBP/USD pair made a new reversal in favor of the US dollar on Wednesday, closing below the level of 1.2513. Thus, the decline in quotes may continue toward the next corrective level of 127.2% (1.2440). A rebound in the pair's rate from this level will favor the British pound and some growth towards 1.2513 while closing below it will increase the likelihood of further decline towards the next level of 1.2342.
The waves continue to signal a "bearish" trend. Yesterday's upward wave turned out to be very weak and had no chance of changing the flight path. Today, the pair is falling again and has already broken through yesterday's and the day before yesterday's lows. Therefore, at the moment, there is no sign of the "bearish" trend ending. They can only appear based on the current picture above the level of 1.2590.
The British pound has been under pressure for quite some time, and the Governor of the Bank of England, Andrew Bailey, stated yesterday that he expects inflation to fall by half by the end of the year when speaking before the UK Parliament's Treasury Committee. He also stated that interest rates are very close to their peak, and his colleague, Swati Dhingra, added that the current QE program is already sufficiently restrictive. All of this tells traders that there is no need to expect a strong rate hike by the Bank of England. We may see one or two more hikes, but it's not the same as what the market expected six months or a year ago when it was actively buying the pound.
Thus, the British pound continues to lose market support, just like the euro. The situation is fully benefiting the dollar, which has been in a tough spot for about a year.
On the 4-hour chart, the pair managed to secure itself above the descending trend corridor. However, a rebound from the corrective level of 61.8% (1.2745) favored the US currency and a resumption of the decline. A rebound from the level of 1.2450 will favor the British pound and some growth towards the upper line of the descending corridor, while a consolidation below 1.2450 will increase the chances of further decline towards the next corrective level of 50.0% (1.2289). There are no impending divergences observed in any of the indicators today.
Commitments of Traders (COT) Report:
The sentiment among "Non-commercial" traders in the past reporting week has become less "bullish." The number of long contracts held by speculators decreased by 918 units, while the number of short contracts increased by 9788 units. The overall sentiment of major players remains "bullish," but there is now an almost twofold gap between the number of long and short contracts: 97,000 versus 48,000. In my view, the British pound had some decent prospects for further growth a few weeks ago, but now many factors have turned in favor of the US dollar. I don't expect a strong rally in the British pound. I believe that over time, the bulls will continue to unwind their buy positions. The Bank of England can change market dynamics if it continues to raise rates longer than planned.
Economic Calendar for the US and the UK:
US - Initial Jobless Claims (12:30 UTC).
On Thursday, the economic events calendar contains only one, not very important, entry. The impact of the information flow on market sentiment for the rest of the day may be weak.
GBP/USD Forecast and Trader Tips:
Selling the British pound was possible on a close below 1.2590, with a target of 1.2513. Since this level has been breached, selling can be held with a target of 1.2440. A close below that level would suggest holding with a target of 1.2342. For buying, I consider only one signal possible today – a rebound from the level of 1.2450 on the 4-hour chart.
