Analysis of GBP/USD 5M
The GBP/USD currency pair showed volatility of 54 pips on Friday. This is the lowest value for the British pound. During the day, the pound sterling slightly declined; however, this movement did not affect the overall technical picture. Over the past few weeks, the pound has strengthened, but in the last few days it has corrected, as was logical and predictable. On Friday, there were no interesting events or reports from the UK, and in the US, several reports were released that the market paid no attention to. Most macroeconomic publications continue to be ignored. In our opinion, after completing the correction, the pair's rise will resume, as a long-term flat remains on higher timeframes, and price may continue moving from the lower boundary of the range to the upper one. This is purely a technical movement.
From a technical standpoint, the British pound continues its upward trend. The price managed to break through the 1.3465-1.3480 area and the Kijun-sen line, complicating the situation for the bulls. Now the British pound may continue to decline toward the 1.3369-1.3377 area and the Senkou Span B line. Consolidation above the area of 1.3465-1.3480 may trigger the resumption of the upward trend of recent weeks.
On the 5-minute timeframe, a sales signal was formally formed on Friday. During the European trading session, the price bounced off the 1.3465-1.3480 area and then consolidated below the critical line. However, for the remainder of the day, it failed to continue moving downwards and returned to its initial positions.
COT Report
COT reports for the British pound indicate that non-commercial traders with sell positions have dominated the market for several months. The net position is negative, despite the long-term upward trend being maintained. Given the events in the Middle East, it is not surprising that demand for risk currencies remains weak. The war is formally over, but the conflict persists. Geopolitics may support demand for the U.S. dollar in the near future. However, until a consolidation below the trend line occurs, we wouldn't expect a strong decline in the pair.
In the long term, the dollar will continue to decline due to Donald Trump's policies, which is clearly seen on the weekly timeframe (illustration above). The trade war will continue in one form or another for a long time, and Trump's policies are aimed directly and indirectly at weakening the American currency. The long-term upward trend remains intact, as evidenced by the trend line. Recently, the price retested this line and bounced off it. According to the latest COT report (as of July 14), the "Non-commercial" group opened 6,500 BUY contracts and closed 10,100 SELL contracts. Thus, the net position of non-commercial traders increased by 16,600 contracts over the week, which does not significantly affect the overall sentiment of professional players.
Analysis of GBP/USD 1H
On the hourly timeframe, the GBP/USD pair continues to correct after a three-week rise. The market continues to ignore geopolitics, and in recent weeks we have observed a technical rise backed by weak inflation data from the U.S. We would not be surprised if the British currency continues to strengthen, as on the daily timeframe it is heading toward the upper boundary of the range, which is located in the 1.3720-1.3800 range.
On July 20, we highlight the following important levels: 1.3042-1.3050, 1.3096-1.3115, 1.3179-1.3187, 1.3301-1.3309, 1.3369-1.3377, 1.3465-1.3480, 1.3588, 1.3671-1.3681. The Senkou Span B (1.3334) and Kijun-sen (1.3450) lines may also provide signal sources. The Stop Loss level is recommended to be set to break even when the price moves in the correct direction by 20 pips. The lines of the Ichimoku indicator may shift throughout the day, which should be considered when determining trading signals.
On Monday, no significant events or publications are planned in the UK and the U.S. Thus, everything points to a dull Friday leading into a dull Monday. However, unlike the euro currency, the British pound has not been stagnant in recent weeks. Therefore, if any movement is to be expected, it will likely come from the pound.
Trading Recommendations:
Today, traders may open short positions targeting the area of 1.3369-1.3377 if the pair bounces from the area of 1.3450-1.3480. New long positions may be opened in case of consolidation above the area of 1.3465-1.3480 with a target of 1.3588.
Explanations for Illustrations:
Support and resistance price levels – thick red lines around which the movement may end. They are not sources of trading signals.
Kijun-sen and Senkou Span B lines – lines of the Ichimoku indicator transferred to the hourly timeframe from the 4-hour timeframe. They are strong lines.
Extreme levels – thin red lines from which the price previously bounced. They are sources of trading signals.
Yellow lines – trend lines, trend channels, and any other technical patterns.
Indicator 1 on COT charts – the size of the net position of each category of traders.
