Analysis of GBP/USD 5M
On Thursday, GBP/USD traded lower, and fell even more sharply than it rose the day before. Everything we discussed in the EUR/USD review is also relevant for the GBP/USD pair. There were practically no reasons for the dollar to decline on Wednesday evening, and on Thursday, when the Bank of England's stance shifted slightly more towards the dovish side, the pound had even less reasons to rise. Although there was a considerable delay, we finally saw the market's logical reaction to the two central bank meetings.
Yesterday, we warned you against drawing hasty conclusions after the FOMC meeting. The market trades impulsively and emotionally during this time. It is best to conduct analysis no earlier than after a day. However, it is now obvious that the downtrend persists, and the pound is finally falling, as we expected. The breakout of the descending trend line should not be considered. The price still remains below the Ichimoku indicator lines.
There is not much to say about other macroeconomic events on Thursday. Yes, several business activity indices were published in the US and the UK, but they were overshadowed by the two central bank meetings: the FOMC and the Bank of England. Therefore, they had no impact on the pair's movement.
The trading signals on Thursday were simply excellent. Once again, we are convinced that high volatility is the key to strong trading signals and good profits. The very first sell signal near the level of 1.2786 became the only possible entry point for opening a short position. Subsequently, the pair crossed the Ichimoku indicator lines and the range of 1.2691-1.2701. These were also sell signals, but the trade was already open. When the results of the BoE were announced, it was simply advisable to set the Stop Loss to breakeven. Just in case. The profit amounted to at least 100 pips.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has frequently changed in recent months. The red and blue lines, which represent the net positions of commercial and non-commercial traders, constantly intersect and, in most cases, remain close to the zero mark. According to the latest report on the British pound, the non-commercial group opened 21,000 buy contracts and 8,900 short ones. As a result, the net position of non-commercial traders increased by 12,100 contracts in a week. Despite the fact that the net position of speculators is growing, the fundamental background still does not provide a basis for long-term purchases of the pound sterling.
The non-commercial group currently has a total of 112,300 buy contracts and 52,800 sell contracts. The bulls have a big advantage. However, in recent months, we have repeatedly encountered the same situation: the net position either increases or decreases, and the bulls or the bears either have the advantage. Since the COT reports do not provide an accurate forecast of the market's behavior at the moment, we have to scrutinize the technical picture and economic reports. The technical analysis suggests that there's a possibility that the pound could show a pronounced downward movement (descending trend line), but there is currently no sell signal on the higher time frames.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD continues to form a new downtrend. The economic reports and the fundamental background do not support the British pound at all, and yet the currency is reluctant to fall. Nonetheless, we expect the pound to fall, and the meetings of the BoE and the Federal Reserve have once again proven that the pound has no grounds for growth against the dollar.
As of March 22, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2780) and Kijun-sen (1.2730) can also serve as sources of signals. Don't forget to set a Stop Loss to breakeven if the price has moved in the intended direction by 20 pips. The Ichimoku indicator lines may move during the day, so this should be taken into account when determining trading signals.
On Friday, the UK retail sales report will be published, which may slightly affect traders' sentiment. The US economic calendar is relatively quiet. Volatility may decrease again, but the pound may continue to depreciate for some time as it follows the current momentum.
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.
