The GBP/USD pair lost over 100 points on Thursday, something that hasn't happened for quite a while. The British pound finally began its downward movement, and there were good reasons for it. It started to fall in the morning, which was not related to any macro data. Most likely, this was the market's way of showing that it had already considered the Bank of England's interest rate hike and did not intend to buy unless there were any "surprises". There were no "surprises", and the pound hardly moved when the BoE announced its interest rate decision as well as other important information. However, when BoE Governor Andrew Bailey began to speak, the pound suddenly plummeted. Bailey hinted that the BoE might not raise interest rates at every meeting in the future, and inflation will start to decrease in April and by the end of the year it could slow down more than twice. This information could not support the pound, as it is dovish.
There were plenty of trading signals on Thursday. First, the pair consolidated below the critical line, but before the start of the US trading session, it started to "dance". This was the time when it was necessary to leave the market before the announcement of the results of the BoE's meeting. Therefore, it was possible to earn about 10 points on the short position. But it was too risky to use the next sell signal when the pair crossed the 1.2589 level at the beginning of the US session, as Bailey was speaking at this time and the pair could move in any direction. Whoever used this signal made a good profit.
COT report:According to the latest report on the British pound, the non-commercial group of traders closed 700 BUY contracts and opened 4,000 SELL contracts. Thus, the net position of the non-commercial group of traders decreased by 4,700 but in general, it continues to grow. The net position has been steadily rising for the past 8-9 months, but the sentiment of major market players remained bearish during this time. It has turned slightly bullish just recently. Although the British pound is strengthening against the US dollar in the medium term, it is hard to explain this behavior from the fundamental point of view. There is still the possibility of a sharp decline in the pound.
Both major pairs are moving in a similar way now, but the net position of the euro is positive and even implies the imminent completion of the upward momentum, while the net position of the pound still suggests further growth. The British currency has already risen by more than 2,200 pips, which is a lot, and without a strong downward correction, the continuation of growth would be absolutely illogical. The non-commercial group of traders currently has a total of 58,600 sell contracts and 57,600 buy contracts. I remain skeptical about the long-term growth of the British currency and expect it to decline soon but the market sentiment remains largely bullish.
1H chart of GBP/USDOn the 1-hour chart, GBP/USD finally started its downward movement, but it is still above the ascending trend line. Therefore, the uptrend is technically still in place. A bounce off this line could suggest new purchases of the British pound, although I don't believe in such an option. Consolidation below the trend line and the Senkou Span B line would significantly increase the probability of a long-awaited and strong fall in the British currency.
For May 12, we highlight the following important levels: 1.2349, 1.2429-1.2458, 1.2520, 1.2589, 1.2666. The Senkou Span B (1.2491) and Kijun-sen (1.2586) lines can also generate signals. Rebounds and breakouts from these lines can also serve as trading signals. It is better to set the Stop Loss at breakeven as soon as the price moves by 20 pips in the right direction. The lines of the Ichimoku indicator can change their position throughout the day which is worth keeping in mind when looking for trading signals. On the chart, you can also see support and resistance levels where you can take profit.
On Friday, the UK will publish GDP and industrial production reports. The first report is unlikely to significantly deviate from the forecast, while the second one is not that important for the market. Therefore, I don't expect a significant reaction from the market. Also, BoE representative Hugh Pill will speak in the UK, and several representatives of the Federal Reserve in the US. Today's volatility may be lower than yesterday.
Indicators on charts:Resistance/support - thick red lines, near which the trend may stop. They do not make trading signals.
Kijun-sen and Senkou Span B are the Ichimoku indicator lines moved to the hourly timeframe from the 4-hour timeframe. They are also strong lines.
Extreme levels are thin red lines, from which the price used to bounce earlier. They can produce trading signals.
Yellow lines are trend lines, trend channels, and any other technical patterns.
Indicator 1 on the COT chart is the size of the net position of each trader category.
Indicator 2 on the COT chart is the size of the net position for the Non-commercial group of traders.