On the hourly chart, GBP/USD rebounded from the 1.3454–1.3469 resistance level on Tuesday, reversed in favor of the US dollar, and declined to the 38.2% Fibonacci retracement level at 1.3342. A rebound from this level would favor the pound and a potential recovery toward 1.3404 and 1.3454. Consolidation below 1.3342 would suggest further declines toward the next retracement level at 1.3263.
Market sentiment has turned bearish. The latest completed upward wave failed to break the previous peak, while the new downward wave broke below the previous low. Thus, the bears have temporarily gained the initiative. The market has already priced in the prospect of tighter FOMC monetary policy in the near future, while expectations of tighter monetary policy from the Bank of England are only beginning to gain traction. A resumption of the pound's advance is expected once the corrective pullback is complete.
The news background on Tuesday allowed the bears to launch another attack, although such a move should not really have occurred under normal circumstances. In my view, the prospects for tighter FOMC monetary policy in December have not changed following the release of the US inflation report. Inflation accelerated slightly more than expected, but this modest upside surprise is unlikely to change the Federal Reserve's position, as the Fed had already adopted a hawkish stance even before the October Consumer Price Index was released. The market also had sufficient time to price in a December Fed rate hike.
Thus, inflation did rise more than forecast, which could slightly increase the likelihood of tighter monetary policy next year. However, so many events could occur between now and the beginning of next year that all inflation and interest rate forecasts may have to be revised several times. Therefore, no far-reaching conclusions should be drawn at this stage. The short-term outlook, however, is clear. The dollar managed to strengthen significantly on Friday and Tuesday for fairly reasonable reasons, but there are few factors left to support further gains.
On the 4-hour chart, GBP/USD has returned to the 38.2% Fibonacci retracement level at 1.3342. A rebound from this level would favor the pound and a resumption of its advance toward the 1.3469–1.3482 resistance level. Consolidation below 1.3342 would signal the end of the bullish trend and suggest a decline toward the 23.6% Fibonacci retracement level at 1.3265. A bullish divergence is developing on the CCI indicator, which could halt the pair's decline.
Commitments of Traders (COT) Report:
The sentiment of the Non-commercial trader category became less bearish over the latest reporting week. The number of Long positions held by speculators increased by 7,135, while the number of Short positions decreased by 12,458. The current gap between Long and Short positions is approximately 64,000 versus 124,000, respectively. The bears' advantage remains substantial and has been growing over time. Previously, bearish dominance was unquestionable, but it is now less convincing because the fundamental background has changed in recent months.
The bearish trend in the pound is still not considered the most likely scenario. However, developments in the near future will depend on Trump's trade policy, the monetary policies of the Federal Reserve 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 shifted its focus toward peace, but negotiations between Iran and the United States remain extremely difficult. Whether Washington and Tehran will ultimately reach an agreement remains an open question. Any deterioration in the geopolitical situation could once again increase demand for the US dollar.
Economic Calendar for the United States and the United Kingdom:
On November 11, the economic calendar contains no significant events. Therefore, the economic news background is unlikely to influence market sentiment on Wednesday.
GBP/USD Forecast and Trading Recommendations:
Short positions could have been opened following a rebound from the 1.3454–1.3469 level on the hourly chart, with targets at 1.3404 and 1.3342. Both targets were reached. New short positions may be considered if the pair closes below 1.3342, with a target of 1.3263. Long positions may be considered following a rebound from 1.3342, with targets at 1.3454–1.3469.
The Fibonacci retracement levels are drawn from 1.3674 to 1.3136 on the hourly chart and from 1.3674 to 1.3137 on the 4-hour chart.
