The GBP/USD pair made a reversal in favor of the US currency on Friday and consolidated below the level of 1.2342, according to the hourly chart. As a result, quotes can now continue to decline in the direction of the level of 1.2238. The US dollar will benefit from the rebound of prices from the level of 1.2342 and below.
The information background for the British and Americans on Friday was very weak. An unexpected gain of 0.1% q/q in the fourth quarter of GDP for the UK was revealed in a report. Personal revenue increased in America by 0.3%, while costs increased by 0.2%. Although it was 67 points a month earlier, the University of Michigan's consumer sentiment indicator unexpectedly fell to 62 points. American statistics were generally weak, both physically and figuratively speaking. It wasn't crucial to anticipate a powerful response from traders, nor was it crucial to anticipate a sharp decline in the value of the dollar. The GDP report in Britain can be compared to this. Traders anticipated a value of 0.0% but instead saw 0.1%. Because of the small disparity, the market has not been affected by this.
Therefore, I do not connect the pair's Friday decline with the informational context. While it had a different background, the European currency was also falling at the same time. I think it is time for a correction in the pound and the euro after a pretty prolonged rise. Furthermore, the decline in quotes on Friday does not appear to be significant enough to predict its conclusion soon. Only in the USA will there be a significant information background this week. The release of reports on labor markets, unemployment, and wages on Friday will be crucial for the dollar. During the week, two significant ISM indices will be published. The week won't be dull, but the bears need to get to work as soon as Monday because the bulls haven't fully left the market and weak American data could prompt them to do so.
The pair reversed in favor of the US dollar on the 4-hour chart, starting the process of returning to the Fibo level of 127.2% (1.2250). The British pound will benefit from the rebound in prices from this level and the restart of development in the direction of the level of 1.2441. The likelihood of a further decline toward the level of 1.2008 will rise if the pair's rate is fixed below the level of 1.2250. Emerging divergences are currently undetectable in any indication.
Report on Commitments of Traders (COT):
Over the past reporting week, the attitude of traders in the "Non-commercial" category has hardly changed. Speculators' holdings of long positions fell by 297 units, while the holdings of short positions rose by 3,289. The major players' overall outlook is still "bearish," and there are still far more short-term contracts than long-term contracts. Although things have been steadily shifting in favor of the British pound over the past few months, there are still a lot more speculators holding long positions than short ones. As a result, the pound's future is looking better, yet the British pound hasn't changed much over the past six months. There was a break outside the declining corridor on the 4-hour chart, and the pound is currently supported. I do observe that several current factors are at odds with one another, and the information background does not offer the pound much support.
The following is the UK and US news calendar:
UK – index of business activity in the manufacturing sector (PMI) (08:30 UTC).
US – index of business activity in the manufacturing sector (PMI) from ISM (14:00 UTC).
Only two activities are scheduled for Monday on the economic calendars in the US and the UK. The information backdrop may not have much of an impact on the traders' attitudes today.
Forecast for GBP/USD and trading advice:
When the British pound recovers from the level of 1.2342 with a target of 1.2238, new sales may be possible. With a target price of 1.2432, purchases are possible when closing above 1.2342. The British pound is overvalued in the near future, so you should be more cautious with your purchases.