On Monday, the GBP/USD pair consolidated below the 1.2892–1.2931 zone on the hourly chart and broke through the last two price lows today. This opens the door for further declines toward the 1.2788–1.2801 support zone and, potentially, the 76.4% corrective level at 1.2752. At the moment, I do not see any viable opportunities to buy the pound.
The wave structure is clear and does not raise any doubts. The last completed upward wave failed to surpass the peak of the previous wave, while the most recent downward wave broke through two prior lows. This confirms the continued formation of a bearish trend. The last few waves have been nearly identical in size, suggesting a sideways market. However, the continuing lower lows indicate sustained bearish sentiment and point to further pound depreciation in the future.
On Tuesday morning, the British currency faced another setback. The UK unemployment rate for September rose to 4.3%, catching traders off guard. The number of unemployed increased by 26,700, while average wages grew by 4.3%. In my view, the wage report could have supported bullish sentiment as it exceeded expectations. Accelerating wage growth suggests that inflation in the UK may rise more quickly than the Bank of England anticipated. However, traders considered the unemployment report more significant, which led to another drop in the pound.
I expect the pair's decline to continue into the second half of the day, as U.S. traders are also likely to focus on the weak UK data. The pound, which has faced significant challenges in recent months alongside the euro, desperately needs strong news support. However, each new report seems to reinforce bearish sentiment among traders. At the moment, I see no compelling reason for the pound to rise.
On the 4-hour chart, the pair has rebounded twice from the 1.3044 corrective level. After a bullish divergence on the CCI indicator, the pair experienced a small upward correction, but the bears have resumed their attack. I believe the bears will break through the 1.2850 level, which has previously held, and the pound's decline will continue toward the next 61.8% corrective level at 1.2745.
Commitments of Traders (COT) Report
The sentiment of speculators, categorized as Non-commercial traders, became less bullish in the latest reporting week, although it remains bullish overall. The number of long positions held by speculators decreased by 11,899, while short positions increased by 9,373. Bulls still hold a significant advantage, with 121,000 long positions compared to 76,000 short positions, resulting in a net difference of 45,000.
In my opinion, the pound retains a bearish outlook, as even the COT reports indicate strengthening bearish positions. Over the past three months, the number of long positions has increased from 102,000 to 120,000, while short positions have risen from 55,000 to 76,000. I believe professional traders will continue to reduce long positions or increase shorts over time, as the bullish factors for the pound have already been priced in. Technical analysis also supports a continued decline in the pound.
Economic Calendar for the UK and the US
- UK Unemployment Rate (07:00 UTC).
- UK Change in Unemployment Claims (07:00 UTC).
- UK Average Wage Growth (07:00 UTC).
On Tuesday, the economic calendar included three key events, which have already bolstered the bears. The influence of the fundamental backdrop on trader sentiment may remain moderate throughout the day.
GBP/USD Forecast and Trading Advice
Selling the pair was possible after a rebound from the 1.3044 level on the 4-hour chart, targeting 1.2931, which has been reached twice. Subsequent targets of 1.2931, 1.2892, and 1.2845 have also been achieved. I would not recommend buying the pair while it remains in a bearish trend.
Fibonacci Levels
- Hourly Chart: Built between 1.2892 and 1.2298.
- 4-Hour Chart: Built between 1.4248 and 1.0404.
