FX.co ★ Outlook for GBP/USD on September 4. COT report. The market illogically priced US data

Analysis of GBP/USD 5M

GBP/USD resumed its negative trading on Friday. The pound sterling had no apparent reason to fall (this time). We have already mentioned that the US reports have been weak. Even if you consider it neutral, it still shouldn't have pushed the dollar to rise. Therefore, we consider Friday's movement to be illogical. As a result, we might see an upward correction this week to rectify this inconsistency. However, in general, we still expect the pair to move downwards. Despite the dollar's unfounded growth on Friday, it is appreciating quite consistently, as it has been falling over the past 11-12 months without substantial reasons or grounds.

Speaking of Friday's trading signals, we can combine everything into one. Throughout the European session, the price was in the area of the Kijun-sen and Senkou Span B lines, as well as at the 1.2693 level. It tried to settle above and below this area, but it was risky to enter positions. For the first trade, placing a Stop Loss would have required a position too far from the entry point, and the second signal formed during the release of the US data. We advised you not to sell even when the price settled below this area and a strong downward movement began, as the nature of the reports indicated more of a rise than a fall in the pair. In general, these were illogical movements that were difficult to navigate.

COT report:

According to the latest report, the non-commercial group of traders closed 900 long positions and opened 9,800 short ones. Thus, the net position of non-commercial traders decreased by 10,700 positions in a week. The net position has been steadily growing over the past 11 months as well as the pound sterling. Now, the net position has advanced markedly. This is why the pair will hardly maintain its bullish momentum. I believe that a long and protracted downward movement should begin. COT reports signal a slight growth of the British currency but it will not be able to rise in the long term. There are no drivers for opening new long positions. Sell signals are starting to appear on the 4-hour and 24-hour charts.

The British currency has already grown by a total of 2,800 pips, from its absolute lows reached last year, which is a significant increase. Without a downward correction, the continuation of the uptrend will be illogical. We are not against the uptrend; we just believe a solid correction is needed first. The market perceives the fundamental background one-sidedly, ignoring any data in favor of the dollar. The Non-commercial group of traders has a total of 97,000 long positions and 48,700 short ones. I remain skeptical about the long-term growth of the pound sterling, and the market has recently started to pay more attention to selling.

Analysis of GBP/USD 1H

On the 1H chart, the pound/dollar pair is trying to end its bullish correction. The price has settled below the Ichimoku indicator lines, but we consider the possibility of a new phase of the upward correction. In any case, we still expect the pair to fall in the medium term; but take note that you have to be cautious this week. There is a chance that the market will try to reverse Friday's movement.

On September 4, traders should pay attention to the following key levels: 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2693, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B (1.2672) and Kijun-sen (1.2653) lines can also be sources of signals, e.g. rebounds and breakout of these levels and lines. It is recommended to set the Stop Loss orders at the breakeven level when the price moves in the right direction by 20 pips. The lines of the Ichimoku indicator can move during the day, which should be taken into account when determining trading signals. There are support and resistance levels that can be used to lock in profits.

No significant reports are planned in the UK and the US. Most likely, we should brace ourselves for another low-volatility day. However, we will be able to see the market's true sentiment. If the pair rises today, it would confirm our assumption about the previous imbalance.

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.