FX.co ★ Analysis of GBP/USD on September 19. GPB drops to new lows

Good afternoon, dear traders! On the 1H chart, the GBP/USD pair resumed the downward movement, which started last Tuesday. By the end of the week, the pair fell below its 40-year low. However, the pound sterling is likely to tumble to new lows as bears are tightening their grip. The nearest target is 1.1306, the Fibonacci correction level of 423.6%. In my opinion, the pair could drop below this level in the near future. Last week was rich in events. The UK and the US unveiled their inflation figures. In both countries, the Consumer Price Index declined. The pound sterling reacted with a decrease to each report. The US dollar, on the contrary, managed to rise. It seems that traders are not considering other options than selling GBP. This week, the Fed and the BoE are going to announce their rate decisions. Central banks are widely expected to raise the interest rate.

If the likelihood of a 75 basis point rate increase by the Fed is high, analysts are not so certain about the Bank of England. Inflation in the UK began to slow down later than in the US. However, the Bank of England also raised the rate more slowly. I assume that the BoE could raise the key rate by at least 0.50%. Will it help the British currency regain ground? Perhaps the pound sterling will be able to rise in the short term. However, it is unlikely to begin a long term rise. Investors are unwilling to buy GBP. They believe that the UK economy is dealing with serious economic problems compared to the US. This is the main reason for a fall in GBP and an increase in USD. As bears are holding the upper hand over the pound sterling, the greenback is likely to approach new highs. The Fed is also strongly committed to hiking key rates until inflation reaches its 2% target level. However, now, inflation is quite far from the target level. If traders have been selling the pound sterling because of it, why would they suddenly stop doing it? In the last six months, the pound sterling has fallen by 2,200 pips. So, the sentiment remains bearish.

On the 4H chart, the pair slipped below 1.1496. It is likely to tumble to 1.111, the Fibonacci level of 200.0%. There are no divergences in any indicator today. However, if bullish divergence occurs amid such a strong bearish trend, the pair may advance by 100-150 pips. A bearish divergence usually occurs when the price reaches higher highs.

Commitments of Traders (COT):

The mood of the Non-commercial traders over the past week has become much more bearish than a week earlier. The number of Long positions contracted by 11,602, and the number of Short ones climbed by 6,052. Thus, the general mood of large traders remains bearish. The number of Short positions still exceeds the number of Long ones. After the new report, I am even more skeptical about the possible growth of the British currency. Large traders prefer opening short positions. Their mood has gradually changed towards bullish in recent months. Yet, they are now opening short positions again. The pound sterling is moving in the downward channel. So, a trend reversal is unlikely to take place in the short term. Besides, it is still unclear when it may start.

Economic calendar for US and EU:

On Monday, the economic calendar for the UK is empty as well as for the US. The impact of fundamental factors on market sentiment will be low today.

Outlook for GBP/USD and trading recommendations:

It is recommended to open new short positions on the pound sterling if it dips below 1.1496 on the 4H chart with the target level of 1.1306. Now traders may keep these positions open. It is better to refrain from opening long positions.