Long-term perspective.
The GBP/USD currency pair has fallen by another 270 points during the current week. If we also take into account the fall of the Friday before last, then in total the pound has fallen in price by 500 points in 6 trading days. It could have been more if the pair had not grown by 115 points this Friday. Thus, the pound continues to almost collapse, which is caused by a whole range of factors that we have repeatedly listed. There is complicated "geopolitics" for the European continent, there are impending energy and food crises, there is high inflation, which will be much more difficult for Europe to deal with than for the States, there is the weakness of the British economy in comparison with the American one, and much more. However, in the last week, even with all these factors, questions began to arise about such a strong collapse of the British currency. The pound is getting cheaper too fast and too much, whatever the factors, from our point of view. However, the market knows better, and as long as the fall continues, of course, purchases of the British currency should not be considered. From a technical point of view, this week the pair fell to the Fibonacci level of 61.8%-1.2494. Taking into account all of the above factors, the entire downward movement over the past year and a half does not look at all like a correction against the 2020 trend. Accordingly, the next target may be the Fibonacci level of 76.4%-1.2080. There was not a single interesting event in the UK this week, but a new meeting of the Bank of England will be held next week, during which a decision to raise the key rate by another 0.25% may be announced. Unfortunately, the current pace of the pound's decline does not allow us to count on a "bullish" market reaction. If BA refuses to raise the rate, this will theoretically provoke an even greater fall in the pound. In practice, it practically does not matter what decision the BA makes. Traders are now ignoring many macroeconomic events.
COT analysis.
The latest COT report on the British pound has witnessed a new strengthening of the "bearish" mood among professional traders. During the week, the Non-commercial group opened 3.6 thousand buy contracts and 14.3 thousand sell contracts. Thus, the net position of non-commercial traders decreased by another 11 thousand. For the pound, such changes are significant. The Non-commercial group has already opened a total of 110 thousand sales contracts and only 40 thousand purchase contracts. Thus, the difference between these numbers is almost threefold. This means that the mood of professional traders is now "pronounced bearish" and this is another factor that speaks in favor of continuing the fall of the British currency. Note that in the case of the pound sterling, the COT reports data very accurately reflect what is happening in the market. The mood of traders is "bearish", and the pound is falling against the US dollar. We do not see any reason to assume the completion of the downward trend now. COT reports, "foundation", geopolitics, "macroeconomics", and "technology", all speak in favor of the fall of the pound and the growth of the dollar. Of course, the fall of the pound/dollar pair cannot last forever, there must be at least upward corrections, but so far, based on COT reports, we cannot assume when the downward trend will end.
Analysis of fundamental events.
As already mentioned, there was not a single important event or publication in the UK this week. There were several secondary reports in the States, but since the pair moved only in one direction for most of the weeks, it is hardly possible to conclude the market reaction to these data. Important information began to arrive only on Thursday when the US GDP report was published. It was disappointing, but the market continued to buy the US currency. On Friday, when the US currency fell slightly, no important reports were published overseas. The change in the levels of income and spending of the population was higher than expected, so it could not provoke a drop in the dollar, and the consumer sentiment index from the University of Michigan decreased by only 0.5 points, which also could not provoke a strong drop in the dollar. As a result, there were practically no important events this week, if you do not take into account geopolitics. The US Congress has decided on the lend-lease program for Ukraine, which means that weapons for the fight against Russia will now be supplied in any volume and of any type.
Trading plan for the week of May 2-6:
1) The pound/dollar pair declined to the level of 1.2494-61.8% by Fibonacci. Now, if the price bounces off it, then an upward correction to the critical line may begin. We believe that the probability of a correction is quite high, however, given the general market mood, COT reports, geopolitical and fundamental backgrounds, it is unlikely that strong growth of the British currency can be expected now. Overcoming the level of 1.2494 will open for traders the next target for sales of 1.2080.
2) The prospects for the British currency remain rather vague and so far there is no reason to buy the pound/dollar pair. We believe that it is simply impractical to buy a pair on such a strong downtrend, no matter how attractive the current levels look. We believe that it will be possible to open long positions only above the Ichimoku cloud, and such price consolidation is unlikely to happen in the near future.
Explanations of 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.