On the hourly chart, the GBP/USD pair rebounded from the corrective level of 200.0% (1.3105) and reversed in favor of the US currency on Tuesday. Today, the price closed below the Fibonacci level of 161.8% (1.3007), and quotes have nearly reached the next corrective level of 127.2% (1.2917). A rebound from this level would indicate a potential rise towards 1.3007, while a close below it would suggest a further decline toward the levels of 1.2847 and 1.2787.
Finally, the waves have allowed us to consider the end of the bullish trend. The last upward wave did not surpass the peak of the previous wave, while the low of the last downward wave was broken. Thus, opening sell positions during the close below the level of 1.3050 was possible. A new downward wave is forming, and we now have a bearish trend. The pound has experienced significant growth in recent weeks, and now we can anticipate a substantial decline.
Several hours ago, inflation reports were released in the UK. The main consumer price index fell to 7.9% against expectations of 8.2%. The core index dropped to 6.9% against expectations of 7.1%. Therefore, both indicators decreased more than traders had anticipated. Under such an information background, the pound could not find support from the bulls. The faster decline in inflation suggests that the Bank of England may soften its rhetoric soon. However, inflation remains too high to pause or conclude the process of monetary policy tightening.
Nevertheless, since the end of May, the pound's rise from 1.2315 may already incorporate the Bank of England's firm monetary policy tightening. Currently, most factors indicate a decline in the pair.
On the 4-hour chart, the pair experienced a reversal in favor of the US currency and settled below 1.3044. Consequently, the decline may continue toward the levels of 1.2846 and 1.2745. There are currently no emerging divergences in any of the indicators. The pound's decline is the most preferable outcome.
Commitments of Traders (COT) report:
During the previous reporting week, the sentiment of "Non-commercial" traders became more bullish. The number of long contracts held by speculators increased by 15,206 units, while the number of short contracts only increased by 7,408. The overall sentiment among large players remains predominantly bullish, with a significant gap between the number of long and short contracts: 111,000 versus 53,000. The British pound has favorable prospects for further growth, and the current information background provides more support for it than the dollar. However, relying on a strong rise in the British pound is becoming increasingly challenging. The market is overlooking many factors supporting the dollar, while the pound's rise is primarily based on the Bank of England's expectations of further interest rate hikes.
News calendar for the US and the UK:
UK - Consumer Price Index (CPI) (06:00 UTC).
US - Building Permits (12:30 UTC).
On Wednesday, the economic calendar features two noteworthy events, although the most significant one has already been published. The influence of the information background may be weak for the remaining part of the day, but there could be high trader activity during the morning impulse.
Regarding the GBP/USD forecast and trading advice, I suggested selling the British pound if there is a rebound on the hourly chart from the level of 1.3105. Subsequently, signs of a trend reversal emerged, allowing for increased selling positions. It is advisable to maintain these positions with targets at 1.2917 and 1.2847. I recommend cautious purchases of the British pound as the trend has shifted to bearish. In the event of a rebound from the levels of 1.2917 or 1.2847, the target should be the nearest level.