Analysis of GBP/USD 5M
GBP/USD continued its downward movement on Friday, which had started on Thursday. The British pound's decline last week cannot be attributed to the economic reports, as there was very little data. It is unlikely that the UK inflation report triggered the decline. Most likely, traders grew weary of buying the British pound. We do not see any factors that can support further upward movement for the British currency, so we fully support its prolonged and significant decline. The UK retail sales report turned out to be worse than expected, which helped the British pound fall on macro data for a change. Strangely, the market did not interpret this report as favoring the pound. A decrease in retail sales = a decrease in inflation. The market also believes that a decline in inflation does not bring the Bank of England closer to lowering rates. Meanwhile, a 3% inflation rate in the US does not affect the possibility of the Federal Reserve cutting rates in September. The US central bank will cut rates in September and that's it!
From a technical perspective, the price has settled below the ascending channel on the hourly chart, so we have technical grounds to expect a continuation of the decline. However, there have been many similar situations in the past few months, and the pound has never started to decline.
No trading signals were generated on Friday, but on Thursday, the price had already broken the Kijun-sen line and the 1.2981-1.2987 area. As we know, trades often need to be held open for two to three days to expect at least some profit. The price may reach the 1.2863 level by Wednesday.
COT report:
COT reports for the British pound indicate that the sentiment among commercial traders has been constantly shifting in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently cross each other and are often close to the zero mark. According to the latest report on the British pound, the non-commercial group opened 47,900 buy contracts and closed 200 short ones. As a result, the net position of non-commercial traders increased by 48,100 contracts over the week. Thus, sellers failed to seize the initiative once again.
The fundamental background still does not provide any grounds for long-term purchases of the pound sterling, and the currency has a real chance to resume the global downward trend. However, the pair has an ascending trend line in the 24-hour timeframe. Therefore, unless the price breaches this trend line, a long-term decline in the pound is not expected. The pound is rising despite almost everything, but even the COT reports show that major players are buying it enthusiastically.
The non-commercial group currently holds 183,300 buy contracts and 50,400 sell contracts. The bulls are taking the lead in the market, but apart from the COT reports, there is no other indication of potential growth for the GBP/USD pair. Such a substantial advantage for buyers suggests a possible trend reversal.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD has a real chance to end another local uptrend and start the long-awaited decline. We admit that this time, the pair's downward movement may be weak and short-lived, but at the same time, a decline is the only logical and reasonable scenario. The current technical picture allows for a decline, at least to the Senkou Span B line, which lies at the 1.2865 level.
For July 22, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691-1.2701, 1.2796-1.2816, 1.2863, and 1.2981-1.2987. The Senkou Span B (1.2865) and Kijun-sen (1.2971) lines can also serve as sources of signals. Setting the Stop Loss to breakeven when the price moves in the intended direction by 20 pips is recommended. The Ichimoku indicator lines may shift during the day, which should be considered when determining trading signals.
No significant events or reports are scheduled in the UK or the US on Monday. Therefore, the pair may continue to edge lower gradually and experience very low volatility.
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 are strong lines.
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.
