The waves for the British pound are indicating a bearish trend. Each successive low is lower than the previous one, and each successive peak is lower as well. There are no signs of the bearish trend ending yet. For that to happen, a new upward wave should break the last peak, or a new downward wave should not break the last low. Neither of these conditions has been met yet.
Friday's information background might have pleased British pound buyers, but today it disappointed them. Retail trade volumes exceeded traders' expectations on Friday, but today, the service and manufacturing PMI showed a new decline lower than anticipated. The service sector reached 51.5, and the manufacturing sector dropped to 45.0. As a result, the UK's economy is likely to continue to slow down, and the Bank of England will face the dilemma of further tightening monetary policy. The British regulator still has a few months to raise interest rates, but the market is losing confidence in a prolonged rate hike. This exerts and may continue to exert pressure on the pound.
On the 4-hour chart, the pair has reversed in favor of the US dollar and continues to decline toward the 61.8% correction level at 1.2745. A rebound from this level or the trendline will favor the British pound, leading to some growth toward 1.3044. However, the decline may go much lower than this level, given the bearish trend on the hourly chart. If the pair's exchange rate remains below the trendline, the probability of further decline significantly increases. A bullish divergence is approaching in the CCI indicator, but it could still be canceled.
COT report:
The sentiment of non-commercial traders has become more bullish over the last reporting week. The number of long contracts held by speculators increased by 23,602, while the number of short contracts increased only by 17,936. The overall sentiment among major players remains bullish, and there is a twofold gap between the number of long and short contracts: 135,000 against 71,000. The British pound has decent prospects for further growth, but the information background from the UK is not always encouraging, and bears may take the initiative. Expecting a strong rise in the pound is becoming increasingly challenging. The market has not yet priced in many factors supporting the US dollar, and the pound has recently risen solely on expectations of further rate hikes by the Bank of England.
US and UK economic calendar:
UK - Manufacturing PMI (08:30 UTC).
UK - Services PMI (08:30 UTC).
US - Manufacturing PMI (13:45 UTC).
US - Services PMI (13:45 UTC).
On Monday, the economic calendar contains four entries, half of which have already been released. The remaining events may have a moderate impact on the information background.
Forecast for GBP/USD and trading tips:
You could sell the British pound in case of a rebound on the hourly chart from the level of 1.3105. Then, signs of a trend reversal appeared, and selling positions could be increased. Currently, you can keep them open with targets at 1.2801 and 1.2720. I suggest being very cautious with buying the pound, as the trend has turned bearish. If there is a rebound from 1.2801 or 1.2745, the target should be the nearest level on the hourly chart.