Analysis of GBP/USD 5M
GBP/USD continued its upward movement on Wednesday and overcame the important resistance area of 1.2981-1.2987. The price is still located inside the ascending channel, so there are no signs of the upward trend ending at this time. At the same time, the pound sterling continues to show an illogical rise. Yesterday, the UK inflation report, which was the most important report of the day, showed the value of 2% in June. This value coincided with the value of the previous month, against expectations of a decline to 1.9%. We believe that the persistence of the value of May did not give any grounds for new long positions on the British pound. However, the market is not interested in this. It is still using any reason to buy the British currency.
Several reports were also published in the US yesterday. In particular, the number of building permits and housing starts exceeded predictions, while industrial production also surpassed forecasts. Therefore, the dollar still managed to edge higher in the second half of the day. But what is the point of this paltry growth now, if the dollar continues to fall for several consecutive weeks? We should not expect a downtrend until the price settles below the ascending channel.
The pair only formed one trading signal on Wednesday. Volatility was a little higher than usual lately, so the deal managed to earn a little. During the European trading session, the price overcame the area of 1.2981-1.2987, which served as a signal to open long positions. Unfortunately, the price failed to reach the nearest target level (1.3050) by just a few pips. During the US trading session, the price was already falling, so traders could only get profit by manually closing the long position. Nevertheless, lately we see signals that are worked out during the same day.
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 opened 28,600 buy contracts and 5,900 short ones. As a result, the net position of non-commercial traders increased by 22,700 contracts over the week. Thus, sellers failed to seize the initiative once again.
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 pound sterling is rising despite almost everything, and such a movement is extremely difficult to predict.
The non-commercial group currently has a total of 135,300 buy contracts and 50,600 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. And such a strong advantage suggests a potential change in trend.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD continues to show a bullish bias. Traders have an ascending channel at their disposal, and almost all the macro data provokes traders to open long positions. In other words, the US has not released a lot of positive reports lately. And when it does, the market chooses to ignore these reports that should have supported the dollar. Therefore, we can only expect the dollar to strengthen when the price consolidates below the ascending channel.
As of July 18, 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 (1.2781) and Kijun-sen (1.2970) 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.
Today, the UK will publish relatively important reports on unemployment and wages. The market will probably be able to use this data to buy the British pound, no matter what it is. The best that the dollar can expect is a minor corrective movement. The US will only release a secondary report on applications for unemployment benefits. For now, long positions remain valid, although it is quite difficult to explain the pound's current growth.
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;
