Analysis of GBP/USD 5M
GBP/USD continued to show positive trades on Thursday. Yesterday, the market received new reasons to buy the British pound and sell the U.S. dollar. Obviously, it took full advantage of them. For the past nine months, the pound sterling has been rising even without the help of macroeconomics and fundamentals. And when it can't rise, it simply stands still – in a flat. Therefore, when the pound has a reason to rise, there's no doubt that the market will act on them with double diligence. This was the case yesterday. Inflation in the U.S. decreased not to 3.1% as expected, but to 3.0%, and core inflation dropped to 3.3%, although forecasts predicted it would be 3.4%. These figures were more than enough for the dollar, which had already fallen by 250 pips, to lose another 75.
In addition, the UK published a rather optimistic GDP report for May. Usually, the market doesn't react to monthly GDP data, as it prefers quarterly figures. But a strong GDP report is also a reason to buy the pound, so why not take advantage of it? In general, everything continues to go against the dollar. And the market is eager to buy the British currency even without any macroeconomic support.
There was only one trading signal on Thursday, but traders could gain decent profit. During the European session, the price broke through the 1.2863 level, so traders could open long positions. Subsequently, the price didn't surge, but after the inflation report was published, the upward movement continued. Therefore, before the report was released, traders could simply set a Stop Loss for the open trade and wait for another weak report from the U.S. And there are no other types of reports coming from the U.S. now. By the end of the day, the price found equilibrium at the 1.2909 level, where the trade could be closed. The profit amounted to about 35 pips. Yesterday's volatility was decent, but it may noticeably decrease today.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has frequently changed in recent years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, constantly intersect and mostly remain close to the zero mark. According to the latest report on the British pound, the non-commercial group closed 3,400 buy contracts and opened 200 short ones. As a result, the net position of non-commercial traders decreased by 3,600 contracts over the week. Thus, sellers failed to seize the initiative.
The fundamental background still does not provide a basis for long-term purchases of the pound sterling, and the currency has a good chance to resume the global downward trend. However, the price has already breached the trend line on the 24-hour timeframe at least twice. The level of 1.2800 (which is the upper boundary of the sideways channel) is currently preventing the pound from rising further.
The non-commercial group currently has a total of 102,400 buy contracts and 58,500 sell contracts. The bulls are taking the lead in the market, but aside from the COT reports, nothing else suggests a potential rise in the GBP/USD pair. Such a strong advantage suggests that the pair may fall...
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD failed to overcome the 1.2605-1.2620 area. Another bounce from this area has triggered a new round of the upward movement. Now traders have an ascending channel at their disposal, and almost all the macro data are prompting traders to make new long positions. In other words, the U.S. has not released any positive reports for the market. We can only expect the dollar to strengthen when the price consolidates below the ascending channel.
As of July 12, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691-1.2701, 1.2796-1.2816, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2714) and Kijun-sen (1.2862) lines 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 event calendar is empty, but the U.S. will release two reports that may trigger a small market reaction. The Producer Price Index (one of the inflation derivatives) is unlikely to have a significant impact on the dollar, but the Consumer Sentiment Index from the University of Michigan might.
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;
