Hi, dear traders! According to the H1 chart, GBP/USD reversed downwards and fell to 1.1933. If the pair settles below this level, it could continue to slide down towards the retracement level of 685.4% (1.1684). If GBP/USD bounces off 1.1933, it could resume its upward movement towards the Fibo level of 523.6% (1.2146). Investors did not give due attention to the UK inflation data for June, which was released yesterday. Even though the CPI increased to 9.4% y/y, it did not push up the pound sterling. However, GBP did not move down as well, indicating that the reaction of traders to rising inflation remains ambiguous. Andrew Bailey, the governor of the Bank of England, stated that the regulator would consider a 0.50% interest rate increase at its next meeting. However, traders ignored his remarks and did not go long on GBP. The pound sterling is likely to resume its downtrend in the future.
In the meantime, the Conservative Party's leadership vote has determined two final candidates – Rishi Sunak and Liz Truss. Yesterday's round of voting eliminated Penny Mordaunt from the PM race. Rishi Sunak received 137 MP votes, while Liz Truss got 113 votes. The gap between them is small, and a clear favorite in the race cannot be easily named. Starting from July 22, about 160,000 members of the Conservative Party will decide who will be the new UK Prime Minister. The results will be announced on September 5. Boris Johnson's premiership will end on the same day. The Federal Reserve's policy meeting next week will be key for GBP/USD.
According to the H4 chart, the pair reversed downwards – if it settles below 1.1980, it could then continue its decline towards the retracement level of 161.8% (1.1709). The descending trend line indicates that the sentiment of traders is bearish. Indicators show no signs of emerging divergences today.
Commitments of Traders (COT) report:
Non-commercial traders became slightly more bearish last week. Traders closed 5,768 Long and 2,887 Short positions. Market players remain bearish on GBP/USD, and Short positions continue to outnumber Long ones greatly. Major players continue to decrease their exposure to GBP, and their sentiment has remained unchanged recently. GBP/USD could continue to fall in the next several weeks. While the pair could move upwards, it could still be only a 2-3 day correction followed by a renewed decline.
US and UK economic calendar:
US – initial jobless claims data (12-30 UTC).
There are no events in the UK today, and the sole data release in the US is unlikely to influence traders.
Outlook for GBP/USD:Traders are recommended to open new short positions if the pair settles below 1.1933 on the H1 chart, with 1.1684 being the target. Long positions can be opened if GBP/USD bounces off 1.1933 on the H1 chart, targeting 1.2146.