GBP/USD - 24H.
The GBP/USD currency pair fell by 30 points this week, although it was generally already trading more actively than before. Nevertheless, on the 24-hour timeframe, the quotes failed to gain a foothold above the Ichimoku cloud. However, at the end of the week, the pair remained inside the cloud and held above the critical line. Thus, the technical patterns for the two main pairs remain almost identical. As in the euro case, for our expectations to be met and for the pair to start a new upward trend, the bulls must hold the pair above the Ichimoku cloud. Also, as in the euro, the pound/dollar could not fall below the target level for the second round of the global correction of 1.3600 for more than six months. Thus, the situation remains ambiguous.
On the one hand, most technical and fundamental factors indicate a very likely weakening of the US currency. On the other hand, traders have not been able to start new powerful purchases for several months. Thus, we continue to count on the resumption of the upward trend. However, at the same time, we remind you that specific technical signals must confirm any fundamental hypothesis or forecast. At this time, we have only the first signs of the emergence of a new upward trend. It is also important to note that the price has bounced twice from the Fibonacci level of 23.6% this week. The grid of Fibonacci levels is built only on the last turn of the upward movement and not on the entire trend. Thus, even against the last round of growth, the price adjusted by only 38.2%. And the rebound from the level of 23.6% restrained further purchases.
COT report.
During the last reporting week (August 31 - September 6), the GBP/USD pair gained 80 points. The most important group of "Non-commercial" traders continues to reduce their net position, and their mood is becoming more "bearish." These changes are visible on the indicators in the illustration above. The first indicator clearly shows that the green line (the "Non-commercial" group) has already gone below zero levels and continues to decline. The mood of the major players has already changed to "bearish" and is now only getting stronger. However, we cannot conclude that the upward trend is completed due to a weak correction against this trend (recall: only 23.6%). The weakness of the correction over the past six months does not allow us to conclude that a new downward trend has now begun to form, not just a correction. Thus, the major players continued to sell the pound, and the currency itself could not even go below the target area of 1.3600-1.3666 after three attempts. Therefore, we believe that the factor of injecting hundreds of billions of dollars into the American economy by the Fed remains in the first place in terms of importance, which ensures the depreciation of the dollar over a long distance and does not allow it to strengthen too much in the short term. During the reporting week, non-profit traders closed 5.5 thousand contracts for purchase and opened 2.5 thousand contracts for sale. But although the major players are "bearish," this does not help the pound/dollar pair to continue moving below 1.3600.
During the current week, several important reports were published in the UK and a speech by Andrew Bailey. The head of the Bank of England said that the minimum conditions for tightening monetary policy had been reached. However, he did not announce any changes. By and large, this means that in the near future, the BA and other central banks will consider the possibility of curtailing the quantitative stimulus program, which in Britain amounts to 895 billion pounds. Most likely, we will be talking about reducing volumes. But it is quite difficult to say when this will happen because the latest GDP report for July showed that the UK economy grew by only 0.1% compared to June and by 3.6% in three-month terms. The forecasts were much higher, so it makes sense to talk about a slowdown in the pace of recovery. And it is quite likely that this decline is associated with the "coronavirus" pandemic and its new "wave," which is now attacking the UK. However, there is a slowdown in both the US and the EU. Thus, from our point of view, it is still too early to talk about any tightening.
Trading plan for the week of September 13-17:
1) The pound/dollar pair continues to be located above the critical line, so the trend is currently changing to an upward one. Of course, it is still too early to say this for sure since the Bollinger Bands are still directed downwards, and the price has not yet overcome the Ichimoku cloud. Therefore, it will be possible to speak more confidently about a new hike to the north after overcoming the level of 1.3910 (or at least 1.3870). In this case, you can buy a pair with a target of 1.4126.
2) The bears tried to regain the initiative last week, but nothing came of it. From our point of view, sales will not be relevant in the near future, since the price failed to overcome the level of 1.3600 several times. Nevertheless, this is the foreign exchange market, and if the pair manages to return below the critical line, then sales can be considered again with the first target of 1.3600.
Explanations to the illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. Take Profit levels can be placed near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced earlier.
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.