Yesterday, the GBP/USD pair reversed on the H1 chart in favor of the British pound, initiating a slow rise towards 1.1684. I doubt that this upside movement will last for a long time. This week, the Bank of England and the US Federal Reserve will hold their policy meetings which may seriously affect the market sentiment. The first two days of the week brought only slight changes as the information background was almost absent. The euro traders will take notice of Christine Lagarde's speech today. However, there are no similar events in the UK today that could potentially move the pound. Recently, GBP has been demonstrating a steady decline, unlike its European counterpart. This could be explained by the upcoming policy meetings of major central banks. In my opinion, the best scenario is to wait for the results of the meetings before making any conclusions.
As far as I see it, the outcome of even one meeting is hard to predict. Thus, the Bank of England may raise the rate by 0.75% or 0.50%. Andrew Bailey may either confirm his intention to continue monetary tightening at a high pace, or he may focus on the recession and the challenges it poses for the UK economy. In the meantime, Jerome Powell may talk about a technical recession in the US, or he may assure traders that the rate will be raised by 0.75% at the next meeting. Naturally, both heads of the central banks will be talking about inflation, and traders' reaction to this may be reflected in both USD and GBP markets. It is almost impossible to foresee the outcome. So, on Wednesday and Thursday, the trajectory of the pair will be a mystery for traders. At the moment, the pound is trading near its lowest levels in almost four decades, and nobody is willing to buy it. However, the situation may change by the end of the week which will require the adjustment of the trading strategy. Anyway, the pound cannot slide forever. It will rebound sooner or later, and this may be a very deep pullback given how strong the recent fall was.
The pair settled firmly below the level of 1.1496 on the 4-hour chart, indicating a further possible drop to the Fibonacci retracement level of 200.0% located at 1.1111. None of the indicators shows any divergences coming. Yet, any bullish divergence amid such a strong trend will mean an upside pullback of at least 100-150 pips. Usually, when there is a decline, no bearish divergences are formed.
Commitments of Traders (COT) report:
The non-commercial group of traders became more bearish on the pair over the past week. Long contracts decreased by 11,602 while short contracts went up by 6,052. Therefore, the sentiment of large market players remains bearish as the number of short contracts still outweighs the number of long ones. Looking at this report, I can say that my outlook for the British pound became even more pessimistic. Major market participants prefer to sell the pound even though their sentiment has been slowly changing towards bullish in recent months. However, we can see that the number of short positions is increasing. Meanwhile, the pound is rapidly losing ground, so the change in the market trend will take a lot of time. It is not even clear when this process will start.
Economic calendar for US and UK:
There are no important events in the UK economic calendar on Tuesday, just like in the US. Therefore, the information background will not affect the market sentiment today.
GBP/USD forecast and trading tips:
I would recommend selling the pound as soon as the price closes below the level of 1.1496 on the 4-hour chart with the target at 1.1306. These trades can be kept open for now. I wouldn't advise you to buy the pound at the moment.