On the hourly chart, the GBP/USD pair continued its downward movement towards the 127.2% corrective level at 1.3054 on Monday. There was no rebound from this level, and today, the pair might attempt to test it again. A rebound would suggest a reversal in favor of the British pound and some growth towards the level of 1.3151. If the pair closes below the 1.3054 level, the likelihood of a further decline towards the next level of 1.2931 will increase.
The wave pattern is clear. The last completed upward wave (on September 26) did not break the peak of the previous wave, and the currently forming downward wave easily broke the low of the previous wave, which was at 1.3311. Thus, the bullish trend is now considered over, and the formation of a bearish trend has begun.
On Monday, there were no significant news releases for the dollar or pound. However, the broader context continues to support the bears, who had been in the shadows for a long time. The bulls' momentum could not be sustained indefinitely. The British economy is not showing strong results, particularly with ongoing concerns about slow economic growth. Inflation remains above the target level and could accelerate in the coming months, which would allow the Bank of England to maintain higher interest rates for a longer period compared to the Federal Reserve. However, even this factor alone is no longer enough to support bullish traders. In recent months, they have already factored in a slower pace of monetary policy easing by the Bank of England compared to the Fed, as well as the anticipation of rate cuts by the Fed. These two factors have long supported the bulls, but now the bears are stepping in. They have already broken the bullish trend, and now we can expect increased activity from them and a further weakening of the pound. On Friday, the UK will release the GDP report for August, but even if the forecast (+0.2%) is met, the growth may be minimal, offering little help to the bulls.
On the 4-hour chart, the pair reversed in favor of the dollar and secured a position below the 76.4% corrective level at 1.3314. Therefore, the decline may continue towards the next level of 1.3044. No new emerging divergences are observed today, but several bearish signals have been generated in recent weeks. A rebound from the 1.3044 level could suggest some growth, but it is crucial for the bears to close below this level to continue the decline towards the 61.8% Fibonacci level at 1.2745.
Commitments of Traders (COT) Report:
The sentiment of institutional traders became more bullish during the last reporting week. The number of long positions held by speculators increased by 6,144, while the number of short positions decreased by 629. For two weeks, professional traders were reducing long positions and increasing short positions, but now they have resumed buying the pound. The bulls still hold a strong advantage. The gap between the number of long and short positions is 93,000: 161,000 versus 68,000.
In my opinion, the pound still faces downward risks, but the COT reports suggest the opposite for now. Over the past three months, the number of long positions has risen from 135,000 to 161,000, while short positions have grown from 50,000 to 68,000. I believe that over time, institutional traders will start reducing long positions or increasing short positions, as all potential buying factors for the pound have already been realized. Chart analysis indicates that this process could begin in the near future.
Economic Calendar for the US and UK:
On Tuesday, the economic calendar contains no important events. Therefore, the market's reaction to news is expected to be minimal today.
Forecast for GBP/USD and Trader Advice:
Selling the pair was possible after a rebound from the 1.3425 level on the hourly chart with targets at 1.3357 and 1.3259. Both targets have been hit. Closing below 1.3259 allowed for continued sales with a target of 1.3151, and closing below 1.3151 – with a target of 1.3054. All targets except the last one have been hit. I believe it is time to close short positions. New short positions can be opened if the pair closes below 1.3054, with a target of 1.2931. Buying will be possible on a rebound from 1.3054 or 1.3044, with a target of 1.3151.
The Fibonacci levels are constructed from 1.2892 to 1.2298 on the hourly chart and from 1.4248 to 1.0404 on the 4-hour chart.
