GBP/USD corrected higher on Thursday, but it failed to consolidate above the critical line, so the downtrend persists. However, it seems like it was done for formality. The British pound has fallen over the past few weeks, triggered by the results of meetings of the Bank of England and the Federal Reserve, strong data on the U.S. labor market, weaker-than-expected UK inflation, and stronger-than-expected U.S. inflation. However, if we look at the higher timeframes, it is quite difficult to confirm how reliable the downtrend is.
The British pound only falls when the market simply has no other options. In other words, the pound falls when the macroeconomic or fundamental background is 100% clear and cannot be interpreted in any other way. So the pound moves upwards on all other days (regardless of whether the pound has support or not). Therefore, in general, the GBP/USD pair has left the sideways channel, but after that, it didn't continue the downward movement. This week, the British pound tumbled, but due to corrective moves and pullbacks, it is still near the lower boundary of the sideways channel. In fact, the pound is no longer moving downwards, and the downtrend is only for formal purposes. The market continues to maintain high demand for the pound, and the GBP/USD pair continues to trade in a very limited price range.
Speaking of trading signals, the pair did not form any relevant entry signals yesterday. However, during the night, the price bounced off the level of 1.2605, rebounding perfectly. Therefore, we believe that you may consider short positions if the technical picture is not spoiled by the macroeconomic background.
And it could spoil it. For instance, yesterday's UK GDP report turned out to be weaker than expected, but the pound only lost a small amount, and it immediately stopped falling. A little later, the U.S. released secondary reports on retail sales and industrial production, which provoked a much stronger decline in the dollar. The market is still eager to buy the pound.
COT report:COT reports on the British pound showed a bullish bias. According to the latest report on the British pound, the non-commercial group opened 6,400 buy contracts and 6,100 short ones. As a result, the net position of non-commercial traders increased by 300 contracts in a week. The size of the net position implies that the number of long positions had not decreased, so the COT report does not suggest that the pound will start a pronounced decline. The fundamental background still does not provide grounds for long-term purchases of the British currency, but we can't confirm that this supports the downward movement.
The non-commercial group currently has a total of 83,900 buy contracts and 49,500 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. The technical analysis suggests that there's a possibility that the pound could show a pronounced downward movement, 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 left the sideways channel and it may be on track to form a downtrend. However, recently, we've noticed that the market is not in a rush to sell the pound. Hopefully, this is just a temporary situation, but for now, the price has been moving sideways instead of moving downwards. The British pound is still a currency that tends to move sideways, trading in a somewhat illogical and confusing manner.
As of February 16, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2644) and Kijun-sen (1.2613) lines can also serve as sources of signals. Don't forget to set a 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 Friday, the UK will release reports on retail sales. On the U.S. docket, Core PPI, PPI, Building Permits, and Preliminary University of Michigan Consumer Sentiment, will be due later in the day. We hope that the UK report will not exceed forecasts, and U.S. data will not disappoint, as it did yesterday. If this condition is met, then a technical rebound from 1.2605 can yield a very good profit.
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.