GBP/USD continues to decline on the 1-hour chart, The pair has settled below the 1.2007 level. So the pair is very likely to extend its fall toward the next retracement level of 1.1883 which is quite close. A rebound from this level will benefit the pound and may send the price higher to 1.2007. In case the price settles below 1.1883, the pair will head toward the next retracement level of 100.0% found at 1.1737.
The British pound has been tumbling in recent days, and this free fall seems to be continuing for several reasons. First of all, the fall was caused by inflation reports released in the UK and the US. This data can be viewed differently but what is really important is how the market sees it. Apparently, traders are betting on the US dollar given that the pound has been falling for three consecutive days. After a decline on February 2-7 that was triggered by the meetings of the Bank of England and the Fed, the pound made a rebound. It was logical to assume that this move would be followed by the resumption of the main trend but this did not happen. Finally, today's report on UK retail sales for January turned out to be better than expected. However, traders' sentiment remained bearish even within the daily time frame. Therefore, bears seem to be determined to push the pound lower in the near term.
Besides, this week, expectations of a higher Fed rate increased. The same cannot be said about the Bank of England. The UK regulator gives little clues to understand its future steps in the monetary policy. So far, markets expect the central bank to slow down the pace of rate tightening one more time. At the same time, the Fed may introduce more rate hikes than was previously anticipated. This is another bullish factor for the US currency.
On the H4 chart, the pair dropped to the 1.2008 level and settled below it. So, it may soon start to fall toward the next retracement level of 161.8% at 1.1709. The MACD indicator has a bullish divergence coming which may help the pair resume growth. However, the divergence has not formed yet so the price may extend its decline.
Commitments of Traders (COT) report:
The sentiment of the non-commercial group of traders has become less bearish over the past week. The number of Long contracts opened by traders decreased by 6,713 while the number of Short contracts fell by 7,476. The overall sentiment of large market players remained bearish as the number of short positions still exceeds the number of long ones. In recent months, the pound has been gaining ground. In recent months, the British pound has been gaining ground. However, today, there are twice as many short contracts as the long ones. Therefore, the outlook for the pound has again worsened over the past few weeks. The pound, however, is holding steady, following the trajectory of the euro. On the 4-hour chart, the price left the ascending channel that has been there for three months. This can serve as a factor limiting the pound's upside potential.
Economic calendar for UK and US:
UK – Retail Sales (13-30 UTC).
On Friday, the only significant report in the UK has already been released. Meanwhile, the US economic calendar is almost empty today. So, the influence of the information background on the market will be zero during the session.
GBP/USD forecast and trading tips
It was possible to buy the pound when the pair closed below 1.2007 with the target at 1.1883. This position can be held open for now. You can open new long positions when the pair rebounds from 1.1883 on the H1 chart and heads for 1.2007.