On the hourly chart, the GBP/USD pair traded horizontally on Tuesday, and on Wednesday morning, it fell to the corrective level of 127.2% – 1.3054, which I mentioned as the last target of the current downward cycle. A rebound from this level suggests a potential reversal in the pound's favor and some growth toward the 1.3151 level. Holding the pair below 1.3054 would increase the likelihood of further decline toward the 1.2931 level.
The wave pattern is clear. The last completed upward wave (September 26) did not break the previous wave's high, while the currently forming downward wave has easily broken the low of the previous wave at 1.3311. Thus, the bullish trend is considered over, and a bearish trend has started to form. From the 1.3054 level, I expect an upward correction wave.
On Tuesday, there were no economic releases in the UK or the US, but there were several speeches from Federal Reserve officials. Specifically, Alberto Musalem stated that a gradual reduction of the interest rate would be appropriate, although he declined to predict the pace of monetary policy easing. Musalem mentioned that he holds a more hawkish stance than most of his colleagues and would support additional rate cuts only if productivity declines and the labor market "cools down." In his view, delaying a rate cut is just as harmful as cutting it too quickly. He also noted that the risks of inflation remaining above 2% persist, although they are decreasing over time. Thus, the Fed official considers that a new 0.50% rate cut is an emergency measure that should not be used unless one of the indicators shows a significant deterioration. This evening, the U.S. will release the FOMC minutes, providing insight into how many FOMC members support aggressive monetary policy easing.
On the 4-hour chart, the downward movement continues toward the next level of 1.3044, which is now very close. No new divergences are observed today, but numerous bearish signals have formed over the past weeks. A rebound from the 1.3044 level could lead to some growth, but it is crucial for the bears to close below this level to continue the decline toward the 61.8% Fibonacci level at 1.2745.
Commitments of Traders (COT) Report:
The sentiment among the "Non-commercial" trader category became more bullish in the last reporting week. The number of long positions held by speculators increased by 6,144, while short positions decreased by 629. Thus, after two weeks of reducing longs and increasing shorts, professional players have resumed buying the pound. The bulls still hold a significant advantage, with a difference of 93,000: 161,000 long positions versus 68,000 short positions.
In my view, the pound still faces prospects for a decline, but the COT reports suggest otherwise. Over the last three months, the number of long positions has increased from 135,000 to 161,000, while short positions have grown from 50,000 to 68,000. I believe that over time, institutional investors will reduce their long positions or increase short positions since all potential factors for buying the pound have already been priced in. Chart analysis suggests that this process could begin in the near future.
News Calendar for the US and UK:
US – Publication of the FOMC minutes (18:00 UTC).
On Wednesday, the economic events calendar includes only one entry. The impact of the background information on market sentiment today is expected to be weak and only later in the evening.
Forecast for GBP/USD and Trading Tips:
Selling the pair was possible with a rebound on the hourly chart from the 1.3425 level with targets of 1.3357 and 1.3259. Both targets have been achieved. A close below 1.3259 provided the opportunity to continue selling with a target of 1.3151, and a close below 1.3151 targeted 1.3054. All targets have been reached. I believe that sales can be closed. New ones can be opened if a close below 1.3044 occurs, with a target of 1.2931. Purchases will be possible with a rebound from the 1.3054 level or the 1.3044 level, aiming for 1.3151.
Fibonacci level grids are plotted between 1.2892 and 1.2298 on the hourly chart and 1.4248 and 1.0404 on the 4-hour chart.
