On the hourly chart, the GBP/USD pair finally managed to rebound from the 1.3633–1.3641 level on Wednesday and began falling toward the 100.0% corrective level at 1.3556, with the decline continuing throughout Thursday. A rebound from the 1.3556 level would favor the pound and allow for some growth toward the 1.3633–1.3641 level. Consolidation below 1.3556 would allow traders to expect a continuation of the decline toward the next Fibonacci level of 76.4% at 1.3489.
The market situation remains bullish. The latest completed upward wave broke above the previous peak, while the new downward wave has not yet broken below the previous low. Thus, the bulls currently have the initiative in the market, and their advantage is strengthening day by day. The bullish trend can be considered broken only after the low of the latest completed wave is broken — that is below 1.3414 — or after two downward waves have formed.
The fundamental backdrop on Thursday supported neither the bulls nor the bears, as there was very little news, and the significance of the available releases left much to be desired. Therefore, attention should now be focused on the events that will determine market sentiment in the near term. In my view, the speech by FOMC Chairman Kevin Warsh is even more important than the annual Nonfarm Payrolls report. Market sentiment will depend largely on Warsh's stance. If the Fed Chair points to high inflation and a willingness to tighten monetary policy, the state of the labor market will not matter. If, on the contrary, Warsh identifies a new problem for the U.S. economy — weakness in the labor market — inflation expectations will no longer matter. The FOMC must make a choice, and Kevin Warsh must communicate it to the markets. Until we receive an answer to this question, we cannot be certain of either a tightening or an easing of monetary policy.
On the 4-hour chart, GBP/USD rose to the 0.0% correction level at 1.3657 and rebounded from it. Thus, a reversal in favor of the U.S. dollar occurred, and the pair began falling toward the 23.6% Fibonacci level at 1.3538. A rebound from 1.3538 would allow for a resumption of the pound's rise. The CCI and RSI indicators are developing bullish divergences, which could halt the decline.
Commitments of Traders (COT) Report:
The sentiment of the Non-commercial trader category became slightly less bearish over the latest reporting week. The number of Long positions held by speculators increased by 12,075, while the number of Short positions increased by 10,427. The current gap between the numbers of Long and Short positions is effectively 77,000 versus 132,000. The gap and the bears' advantage are gradually narrowing; however, the bears still maintain a substantial advantage. Previously, the bears' dominance raised no questions, but that is no longer the case because the fundamental backdrop has changed.
I still do not believe in a bearish trend for sterling, but in the near term everything will depend on Trump's trade policy, the monetary policies of the Fed and the Bank of England, as well as the duration, scale, and consequences of the war in the Middle East. In recent months, the market has repositioned itself toward expectations of peace, but negotiations between Iran and the United States failed without really getting started. And there is no guarantee that they will resume in the near future. Meanwhile, FOMC monetary policy is shifting toward a refusal to tighten, which does not add optimism for dollar bulls.
News calendar for the United States and the United Kingdom:
- United States – Speech by FOMC Chairman Kevin Warsh (14:00 UTC).
- United States – Annual revision of Nonfarm Payrolls (14:00 UTC).
On August 28, the economic calendar contains two entries, each of which I would consider important. The economic backdrop will influence market sentiment on Friday during the second half of the day.
GBP/USD Forecast and Trading Tips:
Selling the pair was possible following consolidation below the 1.3633–1.3641 level on the hourly chart, with a target of 1.3556. These trades can be kept open today. Buying is possible following a rebound from 1.3556, with a target of 1.3633–1.3641.
The Fibonacci level grids are drawn from 1.3557–1.3272 on the hourly chart and from 1.3158–1.3655 on the 4-hour chart.
