GBP/USD - 24H.
The GBP/USD currency pair has declined by 150 points this week. However, as in the case of the euro, the key event of the week was the overcoming of the 1.3600 level, which has long been considered a reference level. Traders managed to overcome the 1.36 and 1.3580 levels, equal to 23.6%, by Fibonacci of the entire upward trend, which began a year and a half ago. Currently, the pound/dollar pair has managed to adjust by only 23.6% from the movement of 2,700 points up. Thus, even a very impressive downward movement over the past two weeks falls under the concept of "correction" on a 24-hour timeframe. However, important support levels have been overcome, and now it seems that the way down is open. The nearest target is the support level of 1.3284.
It should be noted that a lot of troubles have fallen on the pound in recent weeks. First, as we have already said, the markets believe that in November, the Fed will announce the beginning of the curtailment of the QE program, and against this background, they are buying the dollar. Second, a "fuel crisis" has played out in the UK this week, which is expressed in that most of the gas stations were left without fuel. Fuel is abundant in the country, but there is also a serious shortage of truck drivers, so gasoline cannot be delivered to gas stations. And this problem is reflected not only in the fuel sector. A total shortage of workers has formed in the catering sector, the agricultural sector, and many other places. And this is although unemployment in the UK is declining. However, the British themselves are not eager to work as drivers, waiters and perform various heavy and not too well-paid jobs. Previously, this problem was solved with the help of migrant workers. However, since the beginning of the year, when Brexit was completed, the rules for entering the country on work visas have changed, and it has become more difficult to get a job. Therefore, many labor migrants have relocated to other EU countries, where wages are not lower, and there are much fewer problems with registration. As a result, this logistical crisis hit the positions of the British pound, as many media outlets said that a shortage could be observed not only in the fuel sector but also in many other sectors.
COT report.
During the last reporting week (September 27 - October 1), the major players again slightly strengthened their "bullish" mood. However, it is now as neutral as possible. The fact is that the net position value for the "non-commercial" group of traders is now near zero, which means equality between the number of open long and short positions on the pound. Consequently, neither bulls nor bears own the initiative. Moreover, in the last couple of months, the mood of professional traders has constantly been changing, as the net position is growing and decreasing. Thus, the conclusion is obvious from our point of view: COT reports now do not indicate either a "bullish" mood or a "bearish" one. During the reporting week, the changes in the "Non-commercial" group were minimal. 5.5 thousand buy contracts and 4.5 thousand sell contracts were opened. Thus, the net position of non-commercial traders increased by 1 thousand. If, in the case of the European currency, COT reports signal a very likely further fall, then in the case of the pound, COT reports indicate a neutral mood of traders. The illustration above shows a clear downward trend, but the problem is that professional players do not continue selling British currency. Consequently, a further fall in the pound is not obvious. The euro also adjusted by about 43% against the upward trend, and the pound - by 24%.
Andrew Bailey, Chairman of the Bank of England, gave a speech in the UK last week. However, there were even fewer interesting theses in his speech than in the speeches of Jerome Powell and Christine Lagarde. Markets have been getting rid of the pound for most of the week based on the "fuel crisis." On Thursday and Friday, they adjusted the pair after a powerful fall. It can also be noted that the UK's GDP grew by 5.5% q/q in the second quarter, and not by 4.8% q/q, as predicted. This report was just published on Thursday, so the pound's growth was justified on this day. On Friday, it became known that the business activity index in Britain's manufacturing sector rose in September and amounted to 57.1 points.
Trading plan for the week of October 4 - 8:
1) The pound/dollar pair has not been able to gain a foothold above the Ichimoku cloud, so the downward trend persists. Thus, the fall may continue next week after the current upward correction ends. As long as the price is below the critical line, sales have a higher priority. The nearest target is the 1.3284 level.
2) Bears continue to hold the initiative in their hands. Therefore, it will be possible to consider purchases again no earlier than the price-fixing above the critical line. Bollinger bands are now directed downwards and are expanding, which indicates a downward trend. However, much for the pound will depend on how quickly the markets "move away" from the "fuel crisis" and how long they will buy the dollar based on expectations of the curtailment of QE in November alone.
Explanations to the illustrations:
Price levels of support and resistance (resistance /support), Fibonacci levels – target levels when opening purchases or sales. Take Profit levels can be placed near them.
Ichimoku indicators(standard settings), Bollinger Bands(standard settings), MACD(5, 34, 5).
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.