Hello, dear traders! On the hourly chart, the GBP/USD pair started to trade upwards on Friday after bouncing off the 1.2007 level. At the moment, it has come close to the upper boundary of the descending trend channel, which suggests bearish market sentiment. If the price consolidates above the channel, the British pound will have a chance of extending gains.
On Friday, the pound sterling showed no reaction to statistics from the US, while there were no important releases from the UK. That is why trading activity was subdued. This came as no surprise, especially amid Christmas and New Year's Eve.
Today is Monday, and the situation may repeat itself, as the macroeconomic calendar is again bereft of any reports from the US and Britain. Under such conditions, it will be difficult for bears to retain control of the market, but so far there has been no signal that the pair could leave the descending channel. Thus, the most likely scenario still suggests a continued decline in the British pound.
In my view, the British pound's slide can be fully attributed to the fundamental factors of December. The economic situation in the UK seems to be more challenging than in the US. Inflation remains at its multi-year highs, with no signs of cooling. The economy contracted in the third quarter. Moreover, it will most likely continue shrinking in the next year or two. The Bank of England raised its key rate to 3.5%, but this has had no effect on inflation so far. In the US, the inflation rate has been declining for the fifth month in a row, along with other inflationary indicators. The economy expanded in the third quarter. The Fed's interest rate is approaching its peak.
According to the 4-hour chart, the GBP/USD pair closed below the ascending channel, falling to 1.2008. If the price fixes below the level of 1.2008, it will most likely head towards 1.1709, the 161.8% Fibonacci retracement level. I think that the most important thing is fixation below the ascending trend channel, which characterized the mood of traders as bullish for three months. I expect the British pound to continue losing value.
Commitments of Traders (COT) report:
Over the past week, the mood of non-commercial traders has become less bearish than a week earlier. The number of long contracts increased by 3,276, while the number of short ones decreased by 16,860. Nevertheless, market sentiment of major players remains bearish, and the number of short contracts still exceeds the number of long ones. At the same time, the situation has changed dramatically over the past few months. Now the difference between the number of long and short contracts does not exceed 5,000. A couple of months ago, the difference was threefold. Thus, the outlook for the British pound has improved lately. However, it may continue to fall in the near future as the price has gone beyond the three-month ascending channel on the 4-hour chart.
News calendar for US and UK:
Monday's macroeconomic calendar is bereft of any important releases from the US and Britain. Thus, fundamental factors will have no impact on market sentiment.
GBP/USD forecast and trading tips:
In case the price bounces off the upper boundary of the descending channel on the 1-hour chart, I recommend going short on the British pound with a view to reaching the target levels of 1.2007 and 1.1883. Long positions will be relevant if the price closes above the trend channel on the 1-hour chart. In this case, one can count on a rise to the target levels of 1.2238 and 1.2342.