Analysis of GBP/USD 5M
GBP/USD lost ground on Tuesday, which is entirely logical and predictable. However, for most of the day, the price stood still, slightly above the range of 1.2605-1.2620, but towards the evening, it finally surpassed this range and was prepared to fall further. I have to mention that the market still lacks the desire to sell the British pound, although the euro is actively falling. What makes this interesting is that the pound does not have any substantial reason to make such movements. We haven't received any optimistic news from the UK for a very long time, and there has been no news at all in the last one and a half weeks. Thus, the British pound continues to move in an illogical manner.
Yesterday, the U.S. released two important reports. The ISM Non-Manufacturing Purchasing Managers' Index turned out to be stronger than forecasts, but the Job Openings and Labor Turnover Survey (JOLTS) data was 600,000 less than the market expected. Traders were confused after the release of such reports. Initially, the dollar started to fall, but then it started to climb. In the end, it rose but did so very weakly. This was another set of U.S. reports that were more of a disappointment.
The trading signals were not quite good as the price spent most of the day in a flat range. The pair bounced off the area of 1.2605-1.2620 three times, but at best, managed to rise by only 20 pips. Therefore, traders could open only one long position out of the three buy signals, which eventually closed at breakeven with a Stop Loss. Another sell signal was generated, and since there were no more signals after that, it had to be manually closed, bringing traders a profit of about 20 pips.
COT report:
COT reports on the British pound also align perfectly with what's happening in the market. According to the latest report on GBP/USD, the non-commercial group opened 18,000 long positions and closed 200 short ones. Thus, the net position of non-commercial traders increased by another 18,200 contracts in a week. The net position indicator has been steadily rising over the past 12 months, but it has been firmly decreasing since August. In recent weeks, the pound has traded higher, and large players are gradually increasing their long positions. However, we still believe that the pound will start a pronounced downward movement.
The British pound has surged by a total of 2,800 pips from its absolute lows reached last year, which is an enormous increase. Without a strong downward correction, a further upward trend would be entirely illogical (if it is even planned). We don't rule out an extension of an uptrend. We simply believe that a substantial correction is needed first, and then we should assess the factors supporting the US dollar and the British pound. A correction to the level of 1.1844 would be enough to establish a fair balance between the two currencies. The non-commercial group currently holds a total of 61,300 longs and 69,200 shorts. In general, there is currently a balance between bulls and bears.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD has yet to start a pronounced downward movement, which would be the most logical scenario. We still expect the pound to fall and consider it excessive and illogical for the pair to continue its upward movement. However, the market believes otherwise, so this type of movement may persist. At the moment, the price is in a flat range and cannot even settle below the Senkou Span B line.
Today, we can expect the pair to both rise and fall. Rise – because the price has not overcome the Senkou Span B line. Fall – because it has not surpassed the 1.2605-1.2620 range. Therefore, a rebound from the 1.2605-1.2620 area from below may pose a sell signal. And consolidation above the 1.2605-1.2620 range may act as a sell signal.
As of December 6, we highlight the following important levels: 1.1927-1.1965, 1.2052, 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2726, 1.2786, 1.2863. The Senkou Span B (1.2589) and Kijun-sen (1.2650) lines can also be sources of signals. Signals can be "bounces" and "breakouts" of these levels and lines. It is recommended to set the Stop Loss level to break-even when the price moves in the right direction by 20 pips. The Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. The illustration also includes support and resistance levels that can be used to lock in profits from trades.
On Wednesday, the UK will release the final estimate of the Construction PMI for November. Investors await the US ADP private employment data, which is an analogue of NonFarm Payrolls but less significant. Overall, we do not expect a strong market reaction to either the first or the second report.
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.
