GBP/USD tried to continue its upward movement on Thursday but failed to overcome the important and strong Senkou Span B line. Therefore, at the moment, the pair could either rise further or start a new decline. The fact that the price rebounded from the Senkou Span B line suggests that the British currency could fall back to the 1.2605-1.2620 area in the near future, but this is only from a technical perspective.
In recent days, we noticed that the market seems unwilling to sell the British pound and buy the dollar. Despite relatively few factors supporting the pound, if any at all, market participants continue to hold long positions for the most part. Therefore, the pair can not start a downward movement if no one is selling the pair.
Yesterday, the UK released the Business Activity Index in the services sector, which unexpectedly turned out to be higher than forecasts and the initial estimate. Therefore, in the morning, the British currency was rising quite logically. However, in the second half of the day, the United States released reports on initial jobless claims and the ADP employment change in the non-farm sector. Both of these reports slightly exceeded forecasted values, which strengthened the dollar.
Today, since the price is below the Senkou Span B and Kijun-sen lines, we would say that it is more likely for the pair to fall. However, take note that the US will release important reports, and even the eurozone inflation report could impact the British pound. Therefore, the price could either rise or fall, although the pound would have to deal with strong obstacles if it wants to rise.
Only one trading signal was generated yesterday. The price rebounded from the 1.2717-1.2726 area during the European trading session, and subsequently, it fell by 30-45 pips. The short position had to be manually closed, resulting in a profit of at least 30 pips.
COT report:COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in recent months. The red and green lines, representing the net positions of commercial and non-commercial traders, often intersect and, in most cases, are not far from the zero mark. According to the latest report on the British pound, the non-commercial group closed 10,000 buy contracts and 4,200 short ones. As a result, the net position of non-commercial traders decreased by 5,800 contracts in a week. Since bulls currently don't have the advantage, we believe that the pound will not be able to sustain the upward movement. The fundamental backdrop still does not provide a basis for long-term purchases on the pound.
The non-commercial group currently has a total of 58,800 buy contracts and 44,700 sell contracts. Since the COT reports cannot make an accurate forecast of the market's behavior right now, and the fundamentals are practically the same for both currencies, we can only assess the technical picture and economic reports. The technical analysis suggests that we can expect a strong decline, and the economic reports have also been significantly stronger in the United States than in the United Kingdom for quite some time now.
Analysis of GBP/USD 1HOn the 1H chart, GBP/USD has finally started a downward movement, but it immediately came to an end. We believe that the British pound doesn't have any good reason to strengthen in the long-term. Therefore, at the very least, we expect the pair to return to the level of 1.2513. The price has finally breached the trendline and the Senkou Span B line, but we haven't breached the important area of 1.2605-1.2620. Today, everything will depend on the nature of the US economic reports.
On Friday, the pair may resume its decline, speaking solely from a technical perspective. The price has already rebounded from the Senkou Span B line, and settled below the Kijun-sen, and everything suggests a new decline in the British currency. Therefore, we are considering selling the pair using 1.2605-1.2620 as a target. In our opinion, it would be reasonable to buy if the price closes above the level of 1.2726 and we could use 1.2786 as a target.
As of January 5, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B line (1.2718) and Kijun-sen (1.2691) lines can also serve as sources of signals. Don't forget to set a breakeven Stop Loss to breakeven if the price has moved in the intended direction by 20 pips. The Ichimoku indicator lines may move during the day, so this should be taken into account when determining trading signals.
Today, there are no significant reports lined up in the UK. From the US docket, we can look forward to a series of important reports. Therefore, you should focus on your trades during the US trading session.
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.