GBP/USD continued its negative trades strongly on Monday. Yesterday's event calendar did not contain any crucial events, but overnight Federal Reserve Chief Jerome Powell spoke, and during the day, the ISM report for the US services sector was published. Powell reiterated that the interest rate will not be lowered in March, and said that the central bank wants to be more confident that inflation is moving down to the 2% target. The ISM Services PMI was at 53.4, surpassing the 52.0 forecast. Both of these events supported the dollar, while the pound, which had been in a flat phase for a month and a half, is now eagerly making up for lost ground with a "negative" sign.
From a technical standpoint, it was inevitable that the pound would fall, as this has been brewing for at least several months. We have repeatedly said that the pound sterling is overbought and unreasonably expensive, so there is only one logical option – for the pound to fall by at least 500-600 pips. We believe that in the coming months, the pair could easily reach the level of 1.1800. The market took a short break near the level of 1.2513 and may exhibit a corrective phase for a few days, but this pause should not affect the overall trend.
Only one trading signal was generated yesterday, but it was quite good and strong. During the European trading session, the price bounced off the 1.2605-1.2620 range, afterwards it dropped to the level of 1.2512, falling short by just 5 pips. However, traders still had plenty of time to close this deal at maximum profit, as the pound showed practically no growth until the end of the day.
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 6,300 buy contracts and 5,800 short ones. As a result, the net position of non-commercial traders increased by 500 contracts in a week. 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 72,600 buy contracts and 41,100 sell contracts. Since the COT reports do not provide an accurate forecast of the market's behavior at the moment, we need to pay close attention to the technical picture and economic reports. However, even these types of analysis are currently secondary because, despite everything, the market still maintains a bullish bias towards the pound, and the price has been in a flat range for the second month. The technical analysis suggests that there's a possibility that the pound could show a pronounced 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 is no longer trading in the sideways channel and it should be on track for an extended downtrend. Since the recent upward move (on the 24-hour timeframe) took several months, it is only reasonable for us to expect that the pound may continue to fall for several months. The targets of $1.18-$1.20 seem quite realistic as the pound lacks fundamental and macroeconomic support at the moment.
As of February 6, 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 (1.2706) and Kijun-sen (1.2644) 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, the UK's Construction PMI report may provide impetus, while the US economic calendar is relatively quiet. The macroeconomic background is expected to have a minor impact on the market. The pair might even correct higher on Tuesday.
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.