The GBP/USD currency pair also showed a significant decline on Tuesday. This outcome doesn't surprise us, as the pound sterling is even more overbought and unjustifiably expensive than the euro. Throughout 2024, the euro occasionally went through corrections, but it seems the pound didn't have that option. Therefore, the drop we witnessed yesterday is the bare minimum that could have occurred. We believe that the British currency's decline and the U.S. dollar's rise should continue in the medium term, regardless of the circumstances.
At the start of this week, plenty of factors contributed to the pound's decline and the dollar's rise, something that hasn't happened in quite a while. However, amid the flurry of these events, many have completely forgotten about the more significant factors. The pound sterling has been rising for two years, but how many can answer why it has risen for these two years? We still believe that the key factor has been the market's expectations regarding the Federal Reserve's monetary easing policy. This factor had a destructive impact on the dollar in recent years. Now that the Fed has started lowering rates, this factor is no longer in play – it had been priced in advance.
Two trading signals were formed in the 5-minute time frame yesterday. First, the pair inaccurately broke through the Kijun-sen line and, similarly, the Senkou Span B line. Thus, the upward trend was broken in just one day. In addition, the price consolidated below the trendline in the hourly time frame. Traders could have opened a short position early in the morning, and by the end of the day, its profit amounted to about 110 pips.
COT Report:The COT reports for the British pound show that commercial traders' sentiment has been constantly changing over recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently cross and are mainly near the zero mark. We also see that the last downtrend cycle occurred when the red line was below the zero mark. The red line is above zero, and the price has broken through the important level of 1.3154.
According to the latest report on the British pound, the non-commercial group opened 30,500 BUY contracts and 6,500 SELL contracts. Thus, the net position of non-commercial traders increased by 24,000 contracts over the week. Market participants continue to buy up the pound sterling.
The fundamental backdrop still provides no basis for long-term purchases of the pound sterling, and the currency itself has a genuine chance of resuming a global downtrend. However, on the weekly time frame, an ascending trendline has formed, so until it is broken, we cannot expect the pound to fall in the long term. The pound sterling is rising against almost all odds, and even when COT reports show that major players are selling the pound, it continues to climb. The CCI indicator has already entered the overbought area, even on the weekly time frame.
Analysis of GBP/USD 1HIn the hourly time frame, the GBP/USD pair has started to decline. The upward trend has been canceled, and now we should expect only a fall in the British currency, potentially a significant one. Of course, the market could still resume unjustified purchases of the British currency, but we must reiterate – there are no fundamental or macroeconomic reasons for this. Therefore, as before, we support the decline of the GBP/USD pair.
For October 2, we highlight the following important levels: 1.2796-1.2816, 1.2863, 1.2981-1.2987, 1.3050, 1.3119, 1.3175, 1.3222, 1.3273, 1.3367, and 1.3439. The Senkou Span B (1.3271) and Kijun-sen (1.3346) lines may also serve as sources of signals. Setting the Stop Loss level to break even once the price moves 20 pips in the intended direction is recommended. The Ichimoku indicator lines may shift throughout the day, so this should be considered when determining trading signals.
No significant events are scheduled for Wednesday in the UK, while only the ADP report will be released in the U.S. Yesterday, the JOLTs report showed a much higher value than expected, but we do not consider it the reason for the dollar's rise, as its growth started in the first half of the day.
Explanation of Illustrations:Support and resistance levels: thick red lines where price movement may end. They are not sources of trading signals.
Kijun-sen and Senkou Span B lines: lines of the Ichimoku indicator transferred to the hourly time frame from the 4-hour chart. These are strong lines.
Extreme levels: thin red lines from which the price has previously bounced. They serve as sources of trading signals.
Yellow lines: trend lines, trend channels, and other technical patterns.
Indicator 1 on the COT charts: shows the net position size of each trader category.