Hi everyone! On the 1H chart, the GBP/USD pair dropped below 1.1684 on Tuesday. A further fall of the pound sterling to 1.1306, the Fibonacci correction level of 423.6%, looks likely. The pair is moving in the downward channel, signaling bearish sentiment. I do not expect the pound sterling to rise until the quotes close above the downtrend corridor. The economic calendar for the UK is almost empty this week. The only economic report – the Manufacturing PMI Index for August– is due tomorrow. The US will release the ADP Employment Change report that tracks levels of nonfarm private employment in the US. Some analysts believe that this report provides clues about the figures of the Nonfarm Payrolls report. However, their readings rarely coincide. So, traders prefer to price in NFP data rather than ADP.
A recession in the UK could start this year. So far, there has been only one contraction in GDP. In the second quarter, it fell by 0.1%. Nevertheless, earlier, BoE Governor Andrew Bailey warned that a recession would begin in the second half of the year and last at least five quarters. Analysts at Goldman Sachs expressed the same opinion. They believe that a recession will be severe and protracted. The economic outlook may be slashed if energy prices continue to rise. Currently, gas and electricity prices are skyrocketing. Many analysts warn that energy prices could surge to new highs. Goldman Sachs also notes that as a recession could be protracted, households will be less willing to spend their savings. Financial assistance from the government may be limited. The UK economy is likely to shrink by 3.4% next year. Industrial production will also dwindle. These are bearish factors for the pound sterling. Apart from that, a recession is also looming on the horizon in the US. Some analysts are certain that it has already begun. Nevertheless, traders are still prone to buy the US dollar.
On the 4-hour chart, the pair declined below 1.1709, the Fibonacci level of 161.8%. The pair is likely to slide to the next target level of 1.1496. There are no divergences in any indicator. It is recommended to pay attention to the downtrend corridor on the 1H chart.
Commitments of Traders (COT):
On the 4-hour chart, the pair declined below 1.1709, the Fibonacci level of 161.8%. The pair is likely to slide to the next target level of 1.1496. There are no divergences in any indicator. It is recommended to pay attention to the downtrend corridor on the 1H chart.
The mood of the "Non-commercial" category of traders over the past week has become slightly less bearish than a week earlier. The number of Long positions increased by 14,699 and the number of Short ones climbed by 9,556. Thus, the overall mood of retail traders remains the same – bearish. The number of Short positions still exceeds the number of Long ones. However, the number is smaller than before. Large traders continue to open short positions on the pound sterling. Yet, their mood is gradually getting more bullish. Nevertheless, a trend reversal is unlikely to occur in the near future. The pound sterling has been rising sluggishly in recent weeks. Hence, it resumed a downward movement. The COT reports have revealed that the pound sterling is likely to keep declining rather than start a long-term uptrend.
Economic calendar for US and UK:
US – ADP Employment Change (12:15 UTC).
On Wednesday, the economic calendar for the UK does not contain any crucial reports. The US will unveil only one report. Thus, the impact of the fundamental factors on market sentiment will be very weak.
Outlook for GBP/USD and trading recommendations:
It is recommended to open short positions on the pound sterling at the close below the level of 1.1684 on the 1H chart with the target level of 1.1496. Now, one can keep these traders open. It is better to open long positions if the price rises above the downtrend corridor on the 1H chart with the target level of 1.2007.