On Friday, GBP/USD continued to trade higher within the sideways channel of 1.2620-1.2786, which has been ongoing for over a month. There isn't much to say as the technical picture remains unchanged. The price moves between the boundaries of the sideways channel, moving from one side to the other. In the coming days, the British pound could potentially rise towards the level of 1.2786.
The UK released a dismal retail sales report. And in response, the British currency initially fell in the first half of the day. However, later on, the pound traded higher, as it was likely influenced by the technical picture. During the US session, the dollar also had the potential to strengthen, given the Consumer Sentiment report from the University of Michigan, which turned out to be more upbeat than expected. However, there was no strong demand for the dollar, and so it fell further, which was somewhat surprising.
In reality, fundamental and economic events currently seem to have little impact on the pair's movements. The British pound had an opportunity to break out of the sideways channel last week, but an unexpected report on British inflation, which showed that inflation accelerated, boosted the pound. As a result, traders would have to wait for the price to leave the flat channel or, at their own risk, trade within the rather mediocre movements inside the sideways channel.
Speaking of Friday's trading signals, they were not exactly accurate, and volatility was just over 50 pips. The conditions for opening positions were not very attractive either. Nonetheless, a close below the Kijun-sen and Senkou Span B lines could be interpreted as a sell signal. Since the price did not fall by more than 20 pips, it was better to set a Stop Loss to breakeven for a short position, which ultimately resulted in the trade closing without any profit or loss.
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 close to the zero mark. According to the latest report on the British pound, the non-commercial group opened 5,500 buy contracts and closed 4,600 short ones. As a result, the net position of non-commercial traders increased by 10,100 contracts in a week. Since big buyers currently don't have the advantage, we believe that the pound will not be able to sustain the upward movement for a long time. 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 66,200 buy contracts and 35,300 sell contracts. Since the COT reports do not provide an accurate forecast of the market's behavior at the moment, we need to pay closer attention to the technical picture and economic reports. However, even these types of analysis are currently secondary because, despite everything, the market maintains a bullish bias towards the pound, and the price has been in a flat range for a month. The technical analysis suggests that there's a possibility that the pound could show a pronounce downward movement (but there are no clear sell signals yet), and for a long time now, the economic reports have also been significantly stronger in the United States than in the United Kingdom, but this has not benefited the dollar.
Analysis of GBP/USD 1HOn the 1H chart, GBP/USD once again tested the range between 1.2605 and 1.2620 and failed to break through it. The wide sideways channel is still relevant, and the price has been unable to break out of it for a month now. Therefore, it wouldn't be surprising if the pound continues to appreciate within the range today.
On Monday, the pair has a higher chance of rising than falling. The price is in the middle of the sideways channel but above the Senkou Span B and Kijun-sen lines. Therefore, we believe that you may consider long positions with 1.2786 as the target, but please take note of the fact that we are dealing with a flat market, and the pair could show random movements.
As of January 22, 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 (1.2697) and Kijun-sen (1.2661) 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.
On Monday, there are no significant events lined up in the UK and the US. Therefore, it would be futile to expect strong movements. At best, the pound may gradually rise.
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.