On the hourly chart, the GBP/USD pair executed a new drop on Friday towards the level of 1.2106, bounced from it, turned in favor of the British pound, and returned to the level of 1.2175, which is not significant at this time. Movement during the past week has mostly resembled a horizontal one. Two bounces from the level of 1.2106 keep the British pound afloat, but the bullish traders are too passive at this time, putting the new rise of the pound under doubt. If the quotes manage to stay above 1.2175, it would provide a formal basis to expect a rise to the level of 1.2250. A rebound from the level of 1.2175 would be a formal reason to anticipate a drop to 1.2106.
The wave situation remains somewhat confusing due to the horizontal movement last week. The recent downward waves broke the previous lows, indicating that we are dealing with a "bearish" trend. However, they only formally broke the lows by a few points. The "bearish" trend is still intact, but the bulls are defending the level of 1.2106. I do not exclude the possibility that a new "bullish" trend may start from this level. The first sign of its emergence can be considered a breakthrough of Thursday's peak at 1.2190.
On Friday, another report from the UK was added to the bears' arsenal, and it did not promise anything good for the pound. Retail sales volumes in September decreased by 0.9% m/m and 1.0% y/y. Traders expected -0.2% m/m and -0.1% y/y. Thus, the bears received all the necessary reasons for selling early in the morning. In the second half of the day, there was no significant economic data, but Bank of England Governor Andrew Bailey managed to announce that he expects a sharp decline in inflation in the near future, which could provide some support to bullish traders. Bailey continues to talk about the end of the year when, in his opinion, inflation will "significantly slow down," but the market does not yet believe his word and wants to see a new tightening of monetary policy. However, economists do not expect an interest rate hike at the November 2nd meeting.
On the 4-hour chart, the pair bounced off the upper line of the descending trend corridor after the formation of a "bearish" divergence. The new "bullish" divergence on the CCI indicator suggests a reversal and a new rise towards the Fibonacci level of 50.0%–1.2289. The British pound currently has a rather confusing chart. We can only expect a strong rise in the pair after closing above the descending trend corridor.
Commitments of Traders (COT) Report:
The sentiment of "non-commercial" traders in the last report has not changed. The number of long contracts held by speculators decreased by 753 units, while the number of short contracts increased by 408 units. The overall sentiment of major players has turned "bearish," and the gap between the number of long and short contracts is widening, but now in the opposite direction: 65,000 versus 76,000. In my opinion, the British pound still has excellent prospects for further decline. I do not expect a strong rise in the pound sterling in the near future. Over time, I believe that bulls will continue to reduce their buy positions, just as in the case of the European currency.
News Calendar for the US and the UK:
On Monday, the economic events calendar for the UK and the US was empty. The impact of the news background on market sentiment will be absent for the remaining part of the day.
Forecast for GBP/USD and trader advice:
Both selling and buying the pound are possible when signals are formed around levels 1.2106, 1.2039, or 1.2175. Level 1.2106 and a rebound from it, as happened on Friday, look the most promising. Closing below 1.2106 can be used for selling with a target of 1.2039.