Yesterday, the Bank of England unexpectedly raised the interest rate by 0.50%, shocking traders. After the weak inflation report on Wednesday, such a decision could have been expected, but very few believed in such an outcome of the June meeting. However, the Bank of England truly surprised everyone. It surprised them to the point that traders were simply perplexed and couldn't decide what to do with the pound. There was supposed to be a significant rise, but no significant movements occurred. Even a fall, which would have been illogical, would have shown that traders at least cared.
This morning, the UK released the latest economic reports. Business activity indices in the service and manufacturing sectors fell to 53.7 and 46.2, respectively, but retail sales volume grew by 0.3% in May, surpassing expectations of -0.2%. As a result, we received business activity indices that were not disastrous (unlike in the European Union) and decent retail sales. There was no reason for a collapse in the pound today.
On the 4-hour chart, the pair reversed in favor of the US dollar and resumed its downward movement towards the 100.0% correction level at 1.2674. A rebound from this level will favor the pound and a resumption of growth towards the level of 1.2860. Closing below 1.2674 increases the chances of further decline toward 1.2441. There are no emerging divergences observed in any indicator today.
COT report:
The sentiment of non-commercial traders became slightly less bullish during the last reporting week. The number of long contracts held by speculators increased by 11,320, while the number of short contracts increased by 17,069. The overall sentiment of major players remains bullish, but the number of long and short contracts is now almost equal - 76,000 and 69,000, respectively. The pound has good prospects for further growth, and the current informational background supports it more than the dollar. However, I do not expect a robust rise in the British pound in the coming months. The outcome of the Bank of England's meeting this week will help clarify the pound's prospects.
US and UK economic calendar:
UK - Retail Sales (06:00 UTC).
UK - Manufacturing PMI (08:30 UTC).
UK - Services PMI (08:30 UTC).
UK - Composite PMI (08:30 UTC).
US - Manufacturing PMI (13:45 UTC).
US - Services PMI (13:45 UTC).
US - Composite PMI (13:45 UTC).
On Friday, the economic calendar contains many events, but we only need to wait for the US business activity indices. The impact of the informational background on trader sentiment for the remaining part of the day may be minimal.
Forecast for GBP/USD and recommendations for traders:
You may sell the pound in case of a rebound on the hourly chart from 1.2777, with a target of 1.2676. This target has been almost reached. New sales can be considered upon closing below 1.2676, with targets at 1.2590 and 1.2536. Buying the pound is possible on a rebound from 1.2676 on the hourly chart, with a target of 1.2777.