On the hourly chart, the GBP/USD pair continued its upward movement on Wednesday and reached the new resistance level of 1.3425–1.3431. A rebound of quotes from this zone will favor the U.S. dollar and lead to a moderate decline toward the support level of 1.3357–1.3360. A firm breakout above 1.3425–1.3431 would increase the likelihood of further growth toward the next 50.0% retracement level at 1.3487.
The wave structure turned "bullish" in almost a single day. The last completed downward wave broke the previous low, but the most recent upward wave broke the previous high. The news background in recent weeks has been negative for the U.S. dollar, yet bullish traders had not taken advantage of the opportunities to advance. Now they may finally be spreading their wings.
This morning, the U.K. released important reports on industrial production and GDP for August. The British economy grew by 0.1% m/m, in line with market expectations. Industrial production volumes increased by 0.4%, which exceeded forecasts. However, so far the pound has not used these data to extend its rally. The 1.3425–1.3431 resistance level may have played a role in halting the sterling's advance.
It is also worth noting that after the speeches by Donald Trump and Jerome Powell on Tuesday evening, it's now the bulls who are attacking. In my view, this is quite logical. Bulls had been retreating for a long time, even though they had opportunities to strike. Jerome Powell made it clear to traders that the Fed is likely to continue easing its monetary policy. Donald Trump first raised tariffs on China to 100%, then threatened to cut off all relations with Beijing, followed by reports of 500% tariffs. Thus, there is absolutely no sign of "de-escalation" in U.S.-China relations. However, bullish traders now have a solid fundamental base and very favorable prices for a long-term offensive.
On the 4-hour chart, the pair reversed in favor of the pound after forming a bullish divergence on the CCI indicator, and then rose to the 100.0% retracement level at 1.3435. A rebound from this level would allow traders to expect a reversal in favor of the U.S. currency and some decline. A breakout above this level would increase the likelihood of continued growth toward the next Fibonacci level of 127.2% – 1.3795. No new emerging divergences are observed on any indicator today.
Commitments of Traders (COT) Report:
The sentiment of the Non-commercial category of traders became more bullish during the last reporting week. The number of long positions held by speculators increased by 3,704, while the number of short positions decreased by 912. The gap between long and short positions now stands roughly at 85,000 vs. 86,000. Bullish traders are once again tipping the scales in their favor.
In my view, the pound still faces downside risks, but with each passing month the U.S. dollar looks weaker and weaker. If previously traders worried about Donald Trump's protectionist policies without knowing what consequences they might bring, now they may be concerned about those very consequences: a possible recession, the continuous introduction of new tariffs, and Trump's confrontation with the Federal Reserve — which could result in the regulator becoming politically subordinate to the White House. Thus, the pound now looks far less vulnerable than the U.S. dollar.
News Calendar for the U.S. and U.K.:
- U.K. – GDP Change (06:00 UTC)
- U.K. – Industrial Production Change (06:00 UTC)
- U.S. – Philadelphia Fed Business Activity Index (12:30 UTC)
On October 16, the economic calendar contains three entries, two of which have already been released. The influence of the remaining news background on market sentiment throughout the rest of the day is expected to be very weak.
GBP/USD Forecast and Trading Recommendations:
Sell positions may be considered upon a rebound from the 1.3425–1.3431 level on the hourly chart, targeting 1.3360. Buy positions can be considered if the pair closes above the 1.3425–1.3431 level, with a target of 1.3487.
Fibonacci grids are built between 1.3725–1.3247 on the hourly chart and 1.3431–1.2104 on the 4-hour chart.
