The waves still indicate the preservation of the bearish trend. Last week, we witnessed a rather strong upward wave that formed due to two central bank meetings. It seemed somewhat random, as without strong information background, it probably wouldn't have happened. Yesterday, a new downward wave broke through the previous low, indicating that the bearish trend is unlikely to end soon.
There is no significant news from the UK, and investors are already preparing for the Bank of England's meeting, which will be held on Thursday afternoon. The most popular opinion is that the Bank of England will raise the interest rate by 0.25% but signal a soon end to tightening. It appears that bears are currently playing out this scenario. So, if it does not confirm (interest rate increase of 0.50% or no softening in rhetoric), the British pound may show a strong rise.
Meanwhile, economists are talking about downside risks for the British pound. They note that the market may have overestimated the Bank of England's hawkish stance over the past three months, and the UK economy remains stable but stagnant. Economic growth has suffered the most in the UK among all G10 countries. Inflation has decreased, but much weaker than in the US or the EU, whose currencies are competitors to the British pound. Economists also speculate that the British regulator's stance may become more dovish this Thursday, putting additional pressure on the national currency.
On the 4-hour chart, the pair has closed below the ascending trendline, which changes everything. Now, we should expect a decline in the pair. If the quotes are firmly below the 61.8% Fibonacci level at 1.2745, the probability of further decline toward the next level at 1.2485 will increase. A rebound from 1.2745 will allow investors to expect a small pound rise. Currently, there are no emerging divergences observed in any indicator.
COT report:
The sentiment of non-commercial traders has become less bullish in the last reporting week. The number of long contracts held by speculators decreased by 29,771, while the number of short contracts decreased by 25,037. Overall, large players' sentiment remains bullish, but there is a twofold gap between the number of long and short contracts: 105,000 versus 46,000. The British pound has decent prospects for further growth, but the information background from the UK is not always encouraging, and graphical analysis hints at a trend reversal – bears may take the initiative. It becomes increasingly difficult to count on a strong rise in the pound sterling. The market has not fully considered many factors supporting the US dollar, and the British pound has risen recently only based on expectations of further rate hikes by the Bank of England.
US and UK economic calendar:
US - ADP Nonfarm Employment Change (12-15 UTC).
On Wednesday, the economic calendar contains only one report on the US labor market. The influence of the information background may be weak for the rest of the day.
GBP/USD forecast and trading tips:
You could sell the British pound on a rebound from the level of 1.2866 on the hourly chart, with targets at 1.2801 and 1.2720. These trades can be kept open until buying signals form. You may buy the pound on a rebound from the level of 1.2720 on the hourly chart, with targets at 1.2801 and 1.2866.