FX.co ★ GBP/USD. October 1. The Economy Declines, Powell Softens Rhetoric

On Monday, the GBP/USD pair continued to trade sideways on the hourly chart, between the levels of 1.3357 and 1.3425. Today, the bears have a chance to consolidate below this range, which could lead to a further decline toward the 161.8% retracement level at 1.3259. Another rebound from the 1.3357 level would favor the pound and could result in a rise toward the 1.3425 level.

The wave situation is quite clear. The last completed downward wave (September 6–11) broke below the low of the previous wave, while the upward wave, which has been forming for several weeks, surpassed the peak of the previous wave at 1.3234. Thus, the "bearish" trend ended before it could properly gain momentum. At this point, there are no signs of a new "bearish" trend. A reversal of the current "bullish" trend would require a decline of 340–360 points.

On Monday, the pound remained resilient despite the prevailing news backdrop. Although Jerome Powell's rhetoric softened, the bears couldn't capitalize on it. It should be noted that some FOMC members are prepared for a 0.50% easing of monetary policy at the next meeting. However, Powell stated yesterday that the Fed might lower rates twice by 0.25% each by the end of the year. Additionally, it was reported that the UK economy grew by only 0.5% in Q2, compared to the forecast of 0.6%. The annual growth was also lower. Therefore, all of Monday's events indicated a potential strengthening of the U.S. dollar, but the GBP/USD bears still couldn't make a decisive move forward. It appears that traders are waiting for additional data from the U.S., particularly regarding labor market and unemployment figures, to confirm the FOMC's reluctance to cut rates by 0.50% in November. If they receive this confirmation by the end of the week, the dollar could start performing much better than it currently is. However, for now, I can only highlight the weakness of the bears, who still haven't managed to break below the 1.3357 level. Nevertheless, a rise in the dollar following Powell's speech remains possible.

On the 4-hour chart, the pair rebounded from the 76.4% retracement level at 1.3314. A new reversal in favor of the pound occurred, and growth resumed towards the next level at 1.3642. Bullish divergences have formed on the RSI and CCI indicators, thus increasing the likelihood of further growth. However, consolidation below 1.3314 could signal the beginning of a new "bearish" trend and might lead to a decline toward the 1.3044 level.

Commitments of Traders (COT) Report:

The sentiment among "Non-commercial" traders became much more "bullish" in the latest reporting week. The number of long positions held by speculators increased by 30,503, while short positions grew by only 6,490. Thus, for two weeks, professional traders reduced long positions and increased short ones, but now they have reverted to their earlier pattern. The bulls continue to hold a clear advantage. The gap between long and short positions currently stands at 87,000: 155,000 versus 68,000.

In my view, the pound still has the potential to decline, but the COT reports currently suggest otherwise. Over the past three months, the number of long positions has risen from 102,000 to 155,000, while short positions have increased from 58,000 to 68,000. I believe that over time, professional traders will begin to reduce their long positions or increase their short positions, as all potential factors for buying the British pound have already been accounted for. However, technical analysis currently points to a "bullish" trend.

News Calendar for the US and the UK:

• UK – Manufacturing PMI (08:30 UTC)
• US – Manufacturing PMI (13:45 UTC)
• US – ISM Manufacturing PMI (14:00 UTC)
• US – JOLTS Job Openings (14:00 UTC)

On Tuesday, the economic events calendar includes at least two significant entries. The impact of this news on market sentiment for the remainder of the day is expected to be moderate.

Forecast for GBP/USD and Trading Tips:

Selling the pair was possible after a rebound on the hourly chart from the 1.3425 level, with targets at 1.3357 and 1.3259. These trades can remain open for now. Purchases could have been considered after a rebound from the 1.3357 level, with a target of 1.3425, which has also been achieved. I do not recommend making new purchases at this time.

The Fibonacci levels are plotted based on 1.2892–1.2298 on the hourly chart and 1.4248–1.0404 on the 4-hour chart.