On the hourly chart, the GBP/USD pair experienced a decline below the support zone of 1.2705–1.2715 on Tuesday. However, the decline was short-lived, and today the pair even consolidated above this zone. Thus, on Wednesday, the probability of the British pound's rise is higher than that of its fall. Undoubtedly, the situation may change in the evening as the Fed meeting could lend support to dollar bulls. But the first half of the day shows that the British pound's rise is once again possible despite the descending trend channel.
The wave situation has been clear recently. Bulls remain on the offensive, and we have already seen three consecutive upward waves. The last upward wave managed to surpass the previous peak from February 22nd, so there are no signs of a trend change to "bearish" at the moment. The sideways movement seems to be over as the British pound has risen above all peaks of the last few months. The current downward wave is too weak compared to the previous upward wave. The pair needs to experience a decline at least to the level of 1.2584 to show the first signs of a trend change to "bearish." Alternatively, the new upward wave should not surpass the peak from March 8th.
There was no significant news background in the UK on Tuesday. This morning, the inflation report for February was published, showing a faster slowdown than traders had expected. The headline inflation dropped to 3.4% y/y, and the core inflation to 4.5% y/y. I expected that such figures would trigger a sharp advance of the bears, as the current inflation rate somewhat loosens the Bank of England's hands. Its stance may shift to a more "dovish" one in the near future, which cannot support the pound. But bulls once again demonstrate their strength and determination. Even on a weak report for the British pound, it shows growth again.
On the 4-hour chart, the pair made a new reversal in favor of the US dollar and consolidated below the 61.8% Fibonacci retracement level at 1.2745. Thus, the downward movement may continue towards the next level at 1.2620. No impending divergences are observed in any indicator today. At the moment, it is impossible to form a corridor or a trend line on the 4-hour chart. A clear trend is absent. Consolidation above the level of 1.2745 will once again confirm the strength of the bulls.
Commitments of Traders (COT) report:
The sentiment of the "Non-commercial" trader category became even more "bullish" over the last reporting week. The number of long contracts held by speculators increased by 21,006 units, while the number of short contracts increased by only 8,940 units. The overall sentiment of major players remains "bullish" and continues to strengthen, although I see no specific reasons for this. There is a more than twofold gap between the number of long and short contracts: 123,000 versus 53,000.
In my opinion, the prospects for a decline in the British pound are still intact, but over the past 2.5 months, the number of long contracts has increased from 66,000 to 123,000, while the number of short contracts has remained virtually unchanged. I believe that over time, bulls will start to unwind their buy positions as all possible factors for buying the British pound have already been exhausted. However, bears continue to demonstrate their weakness, hindering the pound from starting to decline. I also want to note that the total number of long and short contracts has been virtually equal for several months, indicating overall market balance.
News Calendar for the US and UK:
UK – Consumer Price Index (07:00 UTC).
US – Fed Interest Rate Decision (18:00 UTC).
US – Fed Economic Projections (18:00 UTC).
US – Fed Rate Forecasts (18:00 UTC).
US – Fed Press Conference (18:30 UTC).
On Wednesday, the economic events calendar contains several important entries. The impact of the news background on market sentiment today will be significant.
Forecast for GBP/USD and Trader Recommendations:
Sales of the British pound could have been considered when closing below the level of 1.2745 on the 4-hour chart with targets at the zone of 1.2705–1.2715 and the level of 1.2620. It is also possible to sell when closing below the zone of 1.2705–1.2715 on the hourly chart with a target of 1.2584–1.2611. Purchases are possible when consolidating above the corridor on the hourly chart with a target of 1.2888.
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