GBP/USD - 24H.
The GBP/USD currency pair has adjusted by 560 points over the past month. At least in the last week and a half, the pound has been persistently showing that it wants to resume the upward trend. We have repeatedly said that the "speculative" factor and the factor of pouring trillions of dollars into the American economy may well provoke a new upward trend in 2021. Moreover, the pound sterling, even in recent months, when the European currency was correcting, did not show such a desire and corrected, rather, for show. At the moment, the pair continues to trade inside the Ichimoku cloud and has not managed to overcome its lower limit, the Senkou Span B line. The price has not yet been able to gain a foothold above the critical line, so the situation remains somewhat unclear. We have also already said that if we pay attention to the fundamental background from the UK, the pound should be somewhere around the level of 1.3000. But traders continue to ignore the "foundation" from the Foggy Albion, continue to ignore the "macroeconomics", and the epidemiological situation in the United States and Britain is now approximately the same – the rate of vaccination of the population is good. But if the American economy is recovering at a high rate, then nothing can be said about the British one. Even if we take only the last segment of the upward trend, which took 5 months, the current correction is less than 38.2%. If we take the entire upward trend, which began in March last year, we will get even less. Thus, even taking into account the factor of the imbalance of money supply in the UK and the US, the pound is trading unreasonably. It is heavily overbought and has no specific reason to be so high.
COT report.
During the last reporting week (March 23-29), the GBP/USD pair fell by 100 points. We have already noted that the fundamental reasons for such movements of the pound do not stand up to any criticism. So, the data from the COT reports is also very strange. To begin with, we will pay attention to the behavior of the first indicator, or rather its red and green lines, which indicate the net positions of non-commercial and commercial traders. Since July last year, these lines are constantly changing the direction of their movement, constantly intersecting, which indicates that there is no consensus among traders on what to do with the British pound. It is sold and bought, but at the same time, a strong upward trend persists. That is, professional players do not constantly buy the British currency all this time, but it shows a total increase of 28 cents against the dollar. We believe that this indicates a strong drop in demand for the US currency or about a sharp increase in the supply. In this situation, it turns out that professional participants do not increase buy contracts constantly and in large quantities, but the pound is growing by leaps and bounds, for reasons beyond its control. Such a reason may be the strong growth of the money supply in the United States. As for the latest COT report, the "Non-commercial" group of traders closed 4.7 thousand contracts for buying and 6.8 thousand contracts for selling during the reporting week. Thus, the net position of this group has increased slightly, by about 2 thousand contracts, which indicates an increase in the "bullish" mood. At the moment, non-commercial traders have opened twice as many contracts for buying as for selling, but in general, the figures are very small (47 thousand against 23.5 thousand). Thus, professional traders, in principle, do not favor the pound too much.
During the current week, there were also no really important events in the UK, only a few macroeconomic publications. They were in favor of the pound sterling. For example, GDP for the fourth quarter increased in the second estimate and is now 1.3% y/y. And the index of business activity in the manufacturing sector rose to 58.9. However, in the United States, the statistics were even stronger, and at the end of the week, it was the pound that rose in price. Thus, either the markets once again ignored all the macroeconomic statistics, or their reaction was so weak that it did not affect the overall picture. On Friday, on the increase in the number of new jobs created in the US by 916 thousand against the forecast of 652 thousand, the dollar rose by 25 points in pair with the euro, and pair with the pound sterling - by 13. This is all you need to know at this time about the market reaction to macroeconomic factors.
Trading plan for the week of April 5-9:
1) The pound/dollar pair is doing its best to continue the downward trend. Thus, it will be possible to resume trading for an increase on the 24-hour timeframe not earlier than the price-fixing above the critical line. On lower timeframes, purchases can be considered when forming clear upward trends. Most of the factors now speak in favor of continuing to move down, but the pound sterling stubbornly does not want to become cheaper.
2) Sellers have taken the first step towards the downward trend and this step may remain the only one. At the moment, the chances of a further drop in quotes are still a little more. The nearest targets are the levels of 1.3627 and 1.3474. But the bears need to try hard to consolidate the pair below the Senkou Span B line (1.3712), the further prospects of the pound/dollar depend on this.
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced before.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.