Hi, dear traders! On Friday, GBP/USD bounced off 1.2007 on the H1 chart for the fourth time and rebounded upwards towards 1.2111. The pair then reversed downwards without bouncing off 1.2111. GBP/USD continues to move sideways in a horizontal channel between 1.2007 and 1.2111.
There were no important events last week, and there will not be any such events throughout most of this week. As a result, the pair is likely to remain in a sideways trend until Friday, when key labor market and unemployment data will be released in the US. The only notable data release in the UK this week is the PMI report, which is unlikely to interest traders and push the pair out of the sideways channel. Weak non-farm payrolls or high unemployment could weigh down on the US dollar on Friday, but this data might give support to bears as well. The pair's further trajectory will be clear once GBP/USD breaks out of the sideways channel.
The market reaction to the policy decisions of the Fed and the BoE has been negative for the pound sterling. The UK central bank has begun slowing down the pace of monetary tightening after November's inflation data, which showed a decline in price pressure. However, it is unlikely that such a stance will help bring inflation down to 2% in 2023, and that inflation is certain to decline rapidly, or decline at all. The BoE needs to maintain a hawkish stance to push down price growth.
According to the H4 chart, the pair closed below the descending trend channel and fell to 1.2008, indicating that the sentiment of traders is now bearish. GBP/USD might rise slightly in the direction of 1.2250 if it bounces off 1.2008. If the pair consolidates below that level, its further downside movement will be more likely.
Commitments of Traders (COT) report:
Over the past week, the mood of the Non-commercial traders has become more bearish than the week before. They opened 5,301 Long contracts and 1,055 Short positions. However, major market players remain bearish, and Short positions still outnumber Long ones. The gap between them has narrowed significantly over the past few months, however, and now the difference between the number of opened Long and Short positions is not too high, compared to a threefold difference a couple of months ago. The prospects of GBP have improved a lot lately. However, the pound sterling might continue to decline in the nearest future, as it has moved below the three-month upward channel on the H4 chart.
US and UK economic calendar:
There are no important events on the economic calendar today in both the US and the UK.
Outlook for GBP/USD:
Traders are recommended to open short positions if the pair bounces off 1.2111 on the H1 chart targeting 1.2007 or if it closes below 1.2008 on the H4 chart. Long positions can be opened if the pair rebounds off 1.2007 on the H1 chart with 1.2111 being the target, or if it closes above 1.2111.