Hi everyone! On the 1H chart, the GBP/USD pair grew slightly but it dropped later. A new downtrend corridor has been built, showing that the market sentiment has been bearish in recent days. The pair is likely to settle above or below the indicated level ahead of the Fed meeting tonight and the BoE meeting tomorrow afternoon. Trading volumes may increase significantly.
The pound sterling has remained rather strong these days. For instance, the euro declined drastically. The thing is that UK traders are looking forward not only to the Fed meeting but to the BoE meeting as well. The latter is widely expected to raise the interest rate by 0.75 basis points as well. However, analysts also do not rule out a smaller rate hike. Interestingly, at the last meeting, several BoE policymakers voted for a 0.75 basis point rate increase but eventually, the central bank raised the key rate by only 0.50 basis points. At the upcoming meeting, the watchdog is projected to hike the rate by 0.75 basis points. Yet, the chance of a 100 basis point rate increase is also high as inflation in the UK has accelerated again. Today and tomorrow, traders should brace for sharp reversals.
Today, before the Fed meeting, another important report will be released that could boost the US dollar. The ADP report is a monthly measure of the change in total US nonfarm private employment. It is usually revealed before the Nonfarm Payrolls report, which is due on Friday. Hence, the second half of the week is going to be rather eventful. If the NFP report is strong, it will help bears regain the upper hand. There might be more reasons for the US dollar's growth this week. Nevertheless, the opposite scenario will take place if the labor market data turns out to be weaker than expected.
On the 4H chart, the pair consolidated above 1.1496. Thus, it may approach 1.1709, the Fibonacci level of 161.8%. If the price drops below 1.1496, it may resume a downward movement to 1.1111, the Fibonacci level of 200.0% - 1.1111. There are no divergences today.
Commitments of Traders (COT):
Commitments of Traders (COT):
The sentiment of the non-commercial traders over the past week has become slightly less bearish than a week earlier. The number of long contracts increased by 3,183, while the number of short contracts declined by 223. However, the overall sentiment of large traders remains bearish. The number of short contracts significantly exceeds the number of long contracts. Large traders are more willing to open short positions on the pound sterling. Nevertheless, the sentiment is gradually changing to bullish in recent months. This is a lengthy process though. The pound sterling may rise higher only if there are positive fundamental factors. They have been extremely negative for some time. Notably, the sentiment on the euro has been bullish for a long time. however, demand for the European currency is low among traders. As for the pound sterling, even COT reports do not favor long positions.
Economic calendar for US and UK:
US – ADP Employment Change (12:15 UTC).
US – Fed key rate decision (18:00 UTC).
US – Jerome Powell's speech at Press Conference (18:30 UTC).
On Wednesday, there will be no crucial economic reports in the UK. The US will unveil the ADP report. Apart from that, the Fed will announce its key rate decision. The impact of fundamental factors on market sentiment will be rather strong.
Outlook for GBP/USD and trading recommendations:
It is recommended to sell the pound sterling if it retreats from 1.1709 on the 4H chart with the target level of 1.1496 or if it decreases below 1.1496 with a target level of 1.1111. It is better to open long positions with a target level of 1.1709 if it rises above the downward corridor on the 1H chart.