Hello, dear traders! Yesterday, GBP/USD increased by 240 pips on the 1-hour chart. Today, the rise goes on. The price closed above the descending trend line as well as above the 1.1150 mark. Notably, due to intense trading activity in the market, the pound is recovering fast. Therefore, there is nothing surprising in a movement of 300 pips. Spending months in a downtrend, the pound decided it is time to finally start strengthening, which is quite logical given that this is one of the most stable world currencies. The United Kingdom is one of the pillars of the world economy. That is why such a noticeable decline in the value of the pound in recent weeks came as surprise. In my view, a reversal happened for no reason.
In terms of fundamentals, nothing has changed since previous weeks. Of course, anything can be explained, but for me, it is important to clearly understand which event was priced in by the market and which was not. Today, the United Kingdom saw a 0.2% raise in Q2 GDP, whereas traders had expected the reading to drop by 0.1%. Thus, if the reason for the buy-out is the fundamental background, why don't we see a rise in the pound now when it has support from strong macro results? I believe that at some point (probably this Monday) the bears started closing positions and exiting the market. The pound almost hit parity with the US dollar, which is unusual. In recent months, the pound behaved like BTC, which can lose up to 20-30% in a few weeks. Still, GBP is no BTC. Rather, it is a stable currency of a country with a strong-enough economy. Therefore, that collapse was too much. The bears were active but not all the time. Now the pound has found good reasons to recover by another 700-800 pips.
On the 4-hour chart, the pair is moving up to the upper line of the bearish corridor. The bearish divergence was canceled very quickly when the peak was passed. The fact that the quote settled above the 200.0% Fibonacci retracement of 1.1111 indicates growth continuation. Not all the bears have left the market yet but are about to do so.
Commitments of Traders:
The sentiment of Non-commercial traders became less bearish last week. Long positions increased by 160, while short positions decreased by 13,083. Overall, sentiment remains bearish, with the number of short positions exceeding the number of long ones. In light of recent reports and events, I doubt that the pound can extend its growth. Major players are still selling the instrument. Although the bullish sentiment has increased in recent months, the number of short positions is again on the rise. However, it is not reflected in the COT reports. Meanwhile, the pound continues its bear run. Therefore, it will take a lot of time before sentiment turns bullish. It remains to be seen when it happens. In light of the current information background, the bear run could last for a long time.
Macro events in the United States and the United Kingdom:
United Kingdom: Q2 GDP (06-00 UTC).
United States: Personal Income, Personal Spending (12-30 UTC); Michigan Consumer Sentiment (12-30 UTC).
Outlook for GBP/USD:
Short positions could be considered on a bounce off the upper line of the descending corridor on the 4-hour chart, with the target at 1.111, while long positions could be opened now, as the price has closed above the trend line on the 1-hour chart. The targets stand at 1.1306 and 1.1480.