The GBP/USD currency pair has fallen by 250 points during the current week. If we talk about a purely technical picture, such a movement was logical since traders once again failed to overcome the Ichimoku cloud on the 24-hour TF. Nevertheless, considering the fundamental background, the movement can be recognized as strange and illogical. As we have already said, the pair's fall until Wednesday evening is justified. The Fed had to raise the key rate, and the market worked out this increase in advance. However, the dollar continued to rise on Wednesday evening and Thursday morning. It continued to strengthen on Thursday afternoon when the Bank of England announced the results of its meeting and raised the rate for the eighth time in a row by a record value over the past 13 years – 0.75%. And this is already very strange because it turns out that it does not matter what actions the British regulator takes – the market still buys the dollar.
However, the market diligently ignored the previous seven rate increases, which was also not entirely logical. But on Friday, when strong labor market statistics were published in the US, the US dollar was already falling. It seems that the market lost touch with reality on Wednesday evening, traded in the wrong direction, and on Thursday and Friday, just tried to correct this "mistake." Therefore, we have also seen movements that do not fit with the nature of the fundamental and macroeconomic background. At the end of the week, the pair managed to gain a foothold a little above the Ichimoku cloud, but this is still not the consolidation that would allow the British pound to look optimistically into the future. The "bullish" mood in the market persists, but too often, the pound rolls back down, growing with great difficulty. The long-term downward trend may still resume.
COT analysis.
The latest COT report on the British pound showed a slight weakening of the "bearish" mood. During the week, the Non-commercial group closed 8.5 thousand buy contracts and 11.5 thousand sell contracts. Thus, the net position of non-profit traders increased by 3 thousand, which is very small for the pound. The net position indicator has been gradually growing in recent weeks, but this is not the first time it has been growing. The mood of major players remains "pronounced bearish," and the pound sterling maintains a downward trend in the medium term. And, if we recall the situation with the euro currency, there are big doubts that, based on COT reports, we can expect a strong pair growth. How can you count on it if the market buys the dollar more than the pound? The Non-commercial group has opened 79 thousand sales contracts and 34 thousand purchase contracts. The difference, as we can see, is still very big. The euro cannot show growth in the "bullish" mood of major players, and the pound will suddenly be able to grow in a "bearish" mood. As for the total number of open buy and sell, the bulls have an advantage of 21 thousand. But, as we can see, this indicator also does not help the pound much. We remain skeptical about the long-term growth of the British currency, although there are certain technical reasons for this.
Analysis of fundamental events.
Only business activity indices were published in the UK during the current week. All the most significant indices (for the service sector, the manufacturing sector, and composite) expectedly continued to fall and remain below 50.0. Only IDA for the construction sector has grown. Business activity indices were also published in the States, and the most important ISM for the service sector fell to 50.2 in October. The ISM index for the manufacturing sector has also declined, but it is relatively safe at 54.4. However, who is surprised by the drop in business activity now? All three economies are racing toward recession at full speed, and the question now can only be posed as follows: how strong will each recession be? As you can see, inflation continues to grow steadily in the EU and the UK, and in the US, at a rate of 4%, it is not in a hurry to fall much. All this suggests that all three central banks will continue to raise rates and do everything to extinguish inflation. And this, in turn, will harm economic growth.
Trading plan for the week of November 7-11:
1) The pound/dollar pair as a whole maintains a long-term downward trend but is located above the critical line. Therefore, small purchases can now be considered if the Senkou Span B line is confidently overcome, with targets of 1.1764 and 1.2064. There are some reasons for the growth of the British currency, but there are still many reasons for the resumption of the fall. Be careful with your purchases.
2) The pound sterling has made a significant step forward but remains in a position where it is difficult to wait for strong growth. If the price fixes below the Kijun-sen line, the pair's fall can quickly and cheerfully resume with targets in the area of 1.0632 – 1.0357.
Explanations of the illustrations:
Price levels of support and resistance (resistance /support), Fibonacci levels – targets when opening purchases or sales. Take Profit levels can be placed near them.
Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).
Indicator 1 on the COT charts is the net position size of each category of traders.
Indicator 2 on the COT charts is the net position size for the "Non-commercial" group.