GBP/USD surged on Wednesday. Undoubtedly, the British pound sharply strengthened after the results of the Federal Reserve's meeting. More precisely, it was triggered by Fed Chair Jerome Powell's statements, which had a distinctly dovish tone. It is worth noting that Powell did not say anything that was completely surprising. He simply said that Fed officials are likely done raising rates, which was predictable. However, the market reacted as if the Fed had been actively raising the rate in recent meetings and then unexpectedly decided to lower it in December. In general, we believe that the market had formal grounds for selling the dollar, but overall, nothing extraordinary happened.
Now the British pound has corrected higher enough to resume the downward movement. Unfortunately, the market is once again showing that it prefers buying the pound rather than the dollar. Today, the Bank of England may also announce an upcoming easing of monetary policy next year. However, inflation in the UK is higher, so the start of this cycle may be later than in the case of the Fed. Theoretically, today the pound may continue to strengthen if the BoE hints that it will start lowering rates later than the Fed. We believe this would be a logical development. The option of returning to the level of 1.2513 would look much more logical, as both central banks will begin to lower rates next year.
Yesterday's trading signals left much to be desired. Most of the day (after the release of weak UK data in the morning), the pair was clearly flat around the 1.2520 level. There was one more or less noticeable bounce from this level, but by the evening, the pair was still around 1.2520. Therefore, when the Fed announced the results of its meeting and Powell's speech followed, traders were not in profit. It was better to close the deals and exit the market.
COT report:COT reports on the British pound also align perfectly with what's happening in the market. According to the latest report on GBP/USD, the non-commercial group opened 5,000 long positions and closed 14,500 short ones. Thus, the net position of non-commercial traders increased by another 19,500 contracts in a week. The net position indicator has been steadily rising over the past 12 months, but it has been firmly decreasing since August. In recent weeks, the pound has traded higher, and large players are gradually increasing their long positions. However, we still believe that the pound will no longer rally.
The "non-commercial" group currently has a total of 66,300 long positions and 54,600 short ones. In general, the bulls and the bears have reached a balance. Since the COT reports cannot make an accurate forecast of the market's behavior at the moment, and the fundamentals are practically the same for both currencies, we can only consider the technical picture and economic reports. The technical analysis allows us to expect a strong downtrend, and the economic reports have been significantly stronger in the United States than in the United Kingdom. There are many factors influencing the pair's movement right now, and not all of them can answer the question of what to expect next.
Analysis of GBP/USD 1HOn the 1H chart, GBP/USD sharply surged upward, but we believe that it should collapse at any moment. Today, the BoE may provide some information that will trigger a new rise for the pound, but we do not believe in such a scenario. At the same time, we remind you that it is not recommended to open short positions without technical signals to sell.
Today, we advise you to closely monitor the price behavior around the Senkou Span B line. There is a high probability of a bounce from this line and the quotes returning to the level of 1.2520. You may open long positions if the price fails to settle below the Senkou Span B during the day. The target is 1.2726.
As of December 14, we highlight the following important levels: 1.1927-1.1965, 1.2052, 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863. The Senkou Span B (1.2626) and Kijun-sen (1.2575) lines can also be sources of signals. Signals can be "bounces" and "breakouts" of these levels and lines. It is recommended to set the Stop Loss level to break-even when the price moves in the right direction by 20 pips. The Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. The illustration also includes support and resistance levels that can be used to lock in profits from trades.
On Thursday, the BoE and ECB meeting will be in focus. Moreover, the latter event can also have a significant impact on the British pound. In addition, throughout the day, market participants may react to the Fed meeting and Powell's speech.
Description of the chart:Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;
Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals;
Yellow lines are trend lines, trend channels, and any other technical patterns;
Indicator 1 on the COT charts is the net position size for each category of traders;
Indicator 2 on the COT charts is the net position size for the Non-commercial group.