Long-term perspective.
The GBP/USD currency pair has climbed by 200 points during the current week. In sum, the growth of the British currency from the latest lows is already 500 points, and the price has managed to obtain a foothold above the important Kijun-sen line. Thus, the pound can continue its travel to the north. First, it is quite difficult to say why the pound has been increasing for three weeks. On the one hand, technical analysis has been pointing to the need to adjust for a long time, and on the other hand, there were no fundamental grounds for this. Moreover, there were grounds for a new strengthening of the US currency, as the Fed this week lifted the rate by 0.75 percent. Second, if you look at the correction on the 24-hour TF, it is practically not visible, although it is still 500 points. That is, once again we are faced with a situation where the pound seems to be expanding, but its growth is very feeble and does not break the worldwide downturn. Therefore, we predict that next week will be quite critical for the pound. If the market reaction to the conclusions of the Bank of England meeting is favorable, this may be the beginning of a long-term correction of the British pound. If the reaction is negative, the decline will resume swiftly and easily. Moreover, we are not even talking about the conclusions of the meeting itself, since they practically do not matter. This week, we witnessed that the dollar can fall perfectly, even in the face of a significant Fed rate hike. And the Bank of England next week may also hike the rate, and not by the normal 0.25 percent, but by 0.5 percent all at once. However, this does not guarantee the pound's new growth. So far, the pair can continue to advance toward the Senkou Span B line, and if this line is overcome, then it will be feasible to talk about more serious and long-term growth.
COT analysis.
The latest COT report on the British pound again showed minor changes. During the week, the non-commercial group opened 2.6 thousand buy contracts and closed 0.6 thousand sell contracts. Thus, the net position of non-commercial traders climbed by 3.2 thousand. But what does it matter if the mood of the key players remains "pronounced bearish," which is visible by the second indication in the graphic above? It should be paid tribute that in recent months the net position of the "non-commercial" group has been expanding and the pound also shows some inclination to grow. However, both the increase of the net position and the growth of the pound is presently quite weak (speaking worldwide), so it is impossible to conclude that this is the beginning of a new rising trend, and the pound will no longer fall. We also mentioned that the COT statistics do not take into consideration the demand for the dollar in any way. It will probably remain very high right now. Consequently, the strengthening of the British currency necessitates that demand for it rises faster and stronger than demand for the dollar. The non-commercial group has now opened a total of 89 thousand sales contracts and only 34 thousand purchasing contracts. Net positions will have to show an increase for a long time for these metrics to at least level up. Theoretical support can be supplied to the pound by the Bank of England and the technical necessity to adapt from time to time. There is nothing more for the British currency to count on today.
Analysis of basic events.
There was not a single major event or news in the UK this week. Thus, market participants could only pay attention to American numbers and the Fed meeting. As we have already mentioned, the reaction to the outcomes of the regulator's meeting turned out to be entirely illogical, and we are fearful that the dollar will show more than one cycle of strengthening, and what is occurring now is in some manner a trap for purchasers. In general, macroeconomic reports also did not have a big impact on the overall tone of the market. Yes, there was a local reaction, for example, to the US GDP data in the second quarter. But the news on orders for long-term goods turned out to be strong, but the dollar failed to restart growth. Thus, as usual, the attitude of traders has a bigger influence on the movement of the pair than "macroeconomics". Now we are waiting for the BA meeting and the market reaction to it.
Trading plan for the week of August 1-5:
1) The pound/dollar pair as a whole maintains a long-term downward trend but manages to obtain a foothold above the crucial line. However, there have been several similar fixations in recent months, and each time the pair continued on a downward path. Thus, cautious purchases are currently conceivable, but still, it is necessary to take into account the high chance of a return of the negative trend and the proximity of the Bank of England meeting, after which the pair may "fly away" both up and down.
2) The pound continues to be dangerously close to its 2-year lows and may fall again in 2022. If the pair returns to the area below the key line, it may spark a new round of the pound's slide with a target of 1.1410 (100.0 percent Fibonacci) (100.0 percent Fibonacci). You can also observe the rebound from the Senkou Span B line.
Explanations to the illustrations:
Price levels of support and resistance (resistance /support), Fibonacci levels - levels that are targets when starting purchases or sales. Take Profit levels can be set near them.
Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5). (5, 34, 5).
Indicator 1 on the COT charts is the net position size of each group of traders.
Indicator 2 on the COT charts represents the net position size for the "Non-commercial" group.