Analysis of GBP/USD 5M
The GBP/USD currency pair also showed a confident upward movement throughout Wednesday. We have mentioned that there are no reasons for the British currency to strengthen other than technical ones. Currently, there are no factors affecting the pair's movement other than technical ones. The market may continue to react to Jerome Powell's recent statements, in which he mentioned that the key rate would be lowered next year. However, one can just as easily explain any market movement by choosing a suitable event from the past and ignoring all events that suggest a different direction.
Nevertheless, our upward trend is still intact. The pair confidently surpassed its recent local high of 1.2786 and can continue moving to the north. The nearest target is 1.2863, and with the current market sentiment, this target may be reached even before the New Year. Since there are no fundamental events, it is best to analyze the factors next year. We can trade with the trend for now because there is no other option. However, despite yesterday's movements, a flat market is still possible on Thursday and Friday.
The trading signals on Wednesday were not the best, but not the worst. During the European trading session, three trading signals were formed around the 1.2726 level, two of which were false. However, these two sell signals duplicated each other, so only one trade could have been opened based on them. The trade resulted in a loss, but the buy signal also allowed traders to open long positions, which brought profit. Long positions helped offset the loss from the short position, leaving traders in overall profit for the day as the price reached and exceeded the 1.2786 level.
COT Report
COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in recent months. The red and green lines representing the net positions of commercial and non-commercial traders cross each other and, in most cases, are not far from the zero mark. According to the latest report on the British pound, the "non-commercial" group closed 3.2 thousand buy contracts and 1.5 thousand sell contracts. As a result, the net position of non-commercial traders decreased by 1.7 thousand contracts in a week. The changes are minimal. Since bulls do not currently have the upper hand in the market, we do not believe that the British currency can continue to rise for a long time.
The "non-commercial" group currently has 68.8 thousand contracts on buy and 48.9 thousand on sell. Since COT reports do not predict market behavior very well, and the fundamentals are practically identical for both currencies, we must rely on technical analysis and macroeconomic statistics. Technically, there is room for a significant decline in the pound, and macroeconomic data has been stronger in the United States than in the United Kingdom for quite some time.
Analysis of GBP/USD 1H
On the hourly timeframe, the GBP/USD pair does its best to correct downward, but the upward trend persists. There have been no long-term reasons for the pound to rise, and there must be. Therefore, we expect at least a return to the 1.2513 level. However, at the moment, we only have buy signals, so selling the pair is risky. It is better to continue following the trend with a target of 1.2863.
On Thursday, volatility may be low again since yesterday seemed like an exception to the rule. The price crossed the 1.2786 level, so buying remains relevant with a target of 1.2863. Thinking about selling the British currency can be considered when the price rebounds from 1.2863 or consolidates below 1.2786. But we caution that there is currently a lack of logic in the pair's movements, so caution is advised.
On December 28, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, and 1.2981-1.2987. The Senkou Span B (1.2646) and Kijun-sen (1.2712) lines can also be sources of signals. Setting the stop-loss level at breakeven when the price moves in the right direction by 20 pips is recommended. The Ichimoku indicator lines may move during the day, so consider this when determining trading signals.
On Thursday, event calendars are empty in the UK and the US, so strong movements during the day are not expected. Based on yesterday's movement, we would not conclude the strength of the pair's rise, as it looks quite unusual.
Explanations for the illustrations:
Support and resistance levels - thick red lines near which movement may end. They are not sources of trading signals;
Kijun-sen and Senkou Span B lines - lines of the Ichimoku indicator transferred from a 4-hour timeframe to an hourly one. They are strong lines;
Extreme levels - thin red lines from which the price has bounced before. They are sources of trading signals;
Yellow lines - trendlines, trend channels, and any other technical patterns;
Indicator 1 on COT charts - the size of the net position for each category of traders;
Indicator 2 on COT charts - the size of the net position for the Non-commercial group.
