Long-term perspective.
The GBP/USD currency pair has fallen by 100 points during the current week. Although the pound rose by 370 points on Wednesday and Thursday. A stronger fall in the other three days easily blocked even such a strong rise. Thus, from our point of view, there is no doubt about what kind of trend the pair is currently on. The picture this week was almost identical to the picture for the euro/dollar pair. The market began to work out the results of the Fed meeting on Monday. Or maybe at the end of last week. When on Wednesday evening it became known about the increase in the key rate by 0.75%, we already saw a reverse movement, which was also supported on Thursday, when the Bank of England raised the rate for the fifth time in a row. However, as before, the pound failed to extract any benefit for itself from this. Yes, in the context of two days, the British currency showed good growth. This only led to the fact that the price once again worked out the critical line, which was located not so far from it. Starting from February, the month of correction for the pound is so weak that the pair cannot even work out the lower boundary of the Ichimoku cloud. And at the beginning of the year, the correction was not strong. It was just flat, and the lines of the Ichimoku indicator tend to the price in time. Thus, this Ichimoku cloud decreased, which allowed the price to work out, and not vice versa. Therefore, the pound remains as weak as the euro, and as it was before. The fifth increase in the BA rate again did not give any support to the British currency. In addition, the latest macroeconomic reports in the UK left much to be desired. In the States now, not everything is in order with statistics, but the American economy continues to give the impression of an unsinkable ship. Of course, it can also go underwater, but the American ship is also in the port, where no one will let him sink. And the US dollar continues to be the world's reserve currency, no matter what anyone says. Therefore, in the conditions of a difficult geopolitical situation in the world, investors and traders prefer the American economy and the American dollar.
COT analysis.
The latest COT report on the British pound again showed insignificant changes. During the week, the Non-commercial group closed 5.2 thousand buy contracts and 10.5 thousand sell contracts. Thus, the net position of non-commercial traders increased by 5.3 thousand. However, the mood of the major players remains "pronounced bearish". And the pound, despite the growth of the net position, continues to fall. The net position has been falling for 3 months, which is perfectly visualized by the green line of the first indicator in the illustration above or the histogram of the second indicator. Therefore, two or three insignificant increases in this indicator hardly unambiguously indicate the end of the downward trend in the pound. The "Non-commercial" group has a total of 95 thousand contracts for sale and only 29 thousand contracts for purchase. As you can see, the difference between these numbers is more than three times. Note that in the case of the pound sterling, the data from the COT report very accurately reflect what is happening in the market: the mood of traders is "very bearish", and the pound has been falling against the US dollar for a long time. In the last few weeks, the pound has been trying to show growth, but even in the illustration in this paragraph (daily TF), these attempts look pathetic. Since in the case of the pound, the COT report data shows the real picture of things, we note that a strong divergence of the red and green lines of the first indicator often means the end of the trend. Therefore, formally, now we can count on a new upward trend. However, weak geopolitical, fundamental, and macroeconomic backgrounds for European currencies continue to put pressure on them.
Analysis of fundamental events.
This week, the hit parade of failed macroeconomic statistics continued in the UK. GDP shrank by 0.3% in April, industrial production fell by 0.6%, the unemployment rate rose to 3.8%, and wages rose less than forecast. Individually, these reports could not and should not have provoked a strong fall in the pound. But paired with all the other factors (which we constantly talk about), traders got even more reasons to get rid of the British currency. The BA meeting and its results can be considered twofold. It turns out a picture in which the regulator seems to raise the rate, but at the same time raises the inflation forecasts for 2022. That is, we are tightening monetary policy, but we do not even believe that inflation will fall. All this is a negative background for the pound.
Trading plan for the week of June 20-24:
1) The pound/dollar pair completed the upward correction very quickly and now there is very little chance of a new uptrend. The pair could not even work out the Senkou Span A line. Thus, purchases are not relevant again now, and they can be considered no earlier than fixing the price above the Ichimoku cloud. The pair retains theoretical chances of growth, but the pound's position and the aggressiveness of the bulls are not at the level to be sure of growth.
2) The pound sterling, we can say, resumed the downward trend, as it consolidated below the critical line. Formally, on a 24-hour TF, a lateral correction could begin, which is popularly called a "swing". However, so far everything looks as if the fall will continue. Currently, sales with targets of 1.2080 and 1.1410 (76.4% and 100.0% by Fibonacci) are relevant.
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.