GBP/USD continued to rise on Thursday on the 1-hour chart and closed the day below the fibo retracement level of 423.6% at 1.1306. The upside movement was partially supported by the CPI data from the US. Yet, the pound had been rising well before this report. On Friday, the pair reversed in favor of the US dollar and settled firmly below 423.6%. This may send the quote even lower towards 1.1150 and 1.1000.
At the moment, it is very hard to predict the further trajectory of the pound. The high and the low are found at 1.1480 and 1.1000 respectively. A breakout of any of these levels will show the further direction of the pair. Traders are also hesitant to predict the future of the pound. After its steepest decline on record, the stealing performed a strong upset pullback. However, I doubt that the pound will find any proper drivers in the near term.
Analysts at RBC Economics share the same view. According to them, the new plan to cut taxes in the UK creates a huge burden on the budget. The pound sterling is facing massive sell-offs just like the government bonds. Now it will be difficult to restore investors' confidence in the national currency and bonds. RBC Economics sees the pound reaching the level of 1.0350 in the next few months. The Bank of England may improve the situation for the pound by raising the rate by 0.75% or more. Besides, there is an opinion that markets have been buying up the pound in recent weeks on expectations that the UK regulator will hike the rate by 1.00% at its every meeting until the end of 2022. If the central bank fails to meet their expectations, the pound may tumble again.
The pair closed above the descending trend channel on the 4-hour chart. As this is the second time the pair settles there, the chances of a further uptrend are getting higher. If so, it may head for the level of 1.1496. At the same time, the information background may put pressure on GBP/USD. The technical setup on the H4 chart does not clear up the further trajectory of the pound.
Commitments of Traders (COT) report:
Over the past week, the non-commercial group of traders became more bearish on the pair than the week earlier. Traders closed 17,753 long contracts and 14,638 short contracts. However, the overall sentiment of large market players remains bearish as short positions still outweigh the long ones. Therefore, institutional traders still prefer to sell the pound even though their sentiment has been slowly changing towards bullish in recent months. However, this is a slow and lengthy process. The pound may continue its uptrend only if supported by strong fundamental data which has not been so favorable lately. I would like to point out that although the sentiment of the euro trades has become bullish, the euro is still depreciating against the US dollar. As for the pound, even COT reports do not favor buying the pair.
Economic calendar for US and UK:
US - Retail Sales (12-30 UTC).
US - Michigan Consumer Sentiment (14-00 UTC).
The UK economic calendar has no important events on Friday. Meanwhile, there are some minor reports in the US. The impact of the information background on the market may be weak for the rest of the day.
GBP/USD forecast and trading tips:
I would recommend selling the pair with the targets at 1.1111 and 1.1000 that have already been tested. New short positions can be opened when the price closes below 1.1306 on H1 with the targets at 1.1150 and 1.1000. Buying the pair will be possible when the quote settles above the descending channel on the 4-hour chart. In this case, don't wait for the price to settle below 1.1306.