According to the hourly chart, the GBP/USD pair rose to the level of 1.2238 on Thursday, then fell back to the corrective level of 127.2% (1.2112) on Friday. The British pound has been attempting to regain some of the positions it lost last week in recent days. It was quite successful. If the relatively weak data on the British economy hadn't been provided today, bull traders might have kept up their offensive. Bears do not gain an advantage by fixing the pair's rate below the level of 1.2112 since trading is unstable.
In the fourth quarter, the UK's GDP increased by 0%. The third quarter's UK GDP was downgraded to -0.2% q/q. The Statistics Department made this announcement today in the monthly report. Recall that the British economy has been perilously close to collapse for some time and that just a few months ago, the nation's senior authorities discussed the recession openly. Nobody disputes that the economy will experience a recession in 2023 and even in 2024. However, from what we can tell so far, things are not as bad as they could be. When compared to the central bank's 10 interest rate increases during the third quarter, a 0.2% decline is not that significant. Although the economy is not increasing, it is also not declining. It won't be noticeable if the next five quarters experience the same drop, as Andrew Bailey predicted. This implies that inflation, not the economy, is currently London's biggest challenge.
The Bank of England has no choice but to continue tightening the PEPP as long as inflation remains high. Although it is difficult to keep inflation above 10%, a further increase in the rate will accelerate the beginning of the point when the economy will fall every month and every quarter. After all, it is not the slow decline in inflation that is in dispute right now. It does not decrease if the last two months are not taken with a slight slowdown. The British pound may resume rising after a pause of a few weeks due to upcoming rate increases by the Bank of England.
The pair reversed in favor of the US currency on the 4-hour chart as the CCI indicator formed a "bearish" divergence. As a result, the process of falling toward the 1.2008 level started. Closing below the level of 1.2008 will raise the possibility of a further decline in the direction of the following Fibo level of 161.8% (1.1709), as no new emerging divergences are seen in any indicator.
Report on Commitments of Traders (COT):
Over the most recent reporting week, the mood among traders in the "non-commercial" category was less "bearish" than it had been the previous week. The number of long contracts held by investors dropped by 6,713 units, while the number of short contracts dropped by 7,476. The major players' overall outlook is still "bearish," and there are still more short-term contracts than long-term contracts. The situation has shifted in favor of the British pound over the last few months, but today the number of long and short positions in the hands of speculators is nearly doubled once more. As a result, the outlook for the pound has once again declined, but it is not eager to decline and is instead focusing on the euro. An exit from the three-month upward channel was visible on the 4-hour chart, and this development may have stopped the pound's growth.
News calendar for the USA and the UK:
UK – GDP for the fourth quarter (07:00 UTC).
UK – industrial production (07:00 UTC).
US – consumer sentiment index from the University of Michigan (15:00 UTC).
Only the consumer mood index is still available in the US as of Friday, while all reports have already been released in the UK. The British reports received a muted response from traders. The background information's impact on traders' attitudes during the rest of the day will also be minimal.
Forecast for GBP/USD and trading advice:
On a 4-hour chart, sales of the British pound can be started when it recovers from the level of 1.2250, with targets of 1.2112 and 1.2007. On a 4-hour chart, purchases of the pair can be initiated when it rises over the 1.2008 level with targets of 1.2112 and 1.2238.