Analysis of GBP/USD 5M
GBP/USD continued to trade positively on Tuesday. This time, it gradually rose as the overall volatility was quite low. However, the British currency managed to appreciate again when there seemed to be no reason for it. Yesterday, it had no reason to either rise or fall. There was no fundamental and macroeconomic background, and the number of market participants was significantly lower, so movements of 30-40 pips are considered typical market noise. Nevertheless, even amid such conditions, the British currency managed to appreciate again. We believe that the pound sterling is significantly overbought, and its current and potential further growth is illogical.
Despite the ultra-low volatility, two good buy signals were generated yesterday. During the European and US trading sessions, the price bounced off the critical line twice. If it managed to rise by no more than 5 pips the first time, then it saw a stronger movement the second time, and by the end of the day, the pair reached the level of 1.2726. Since the buy signals duplicated each other, only one long position could be opened. However, it turned out to be profitable and traders could gain about 30 pips, which is an excellent result for a semi-holiday kind of day.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has been changing quite frequently in recent months. The red and green lines, representing the net positions of commercial and non-commercial traders, often intersect and, in most cases, are not far from the zero mark. According to the latest report on the British pound, the non-commercial group closed 3,200 buy contracts and 1,500 short ones. Therefore, the net position of non-commercial traders decreased by 1,700 contracts in a week. The changes are negligible. Since bulls don't have the advantage, we believe that the pound will not be able to continue the upward movement for a long time.
The non-commercial group currently has a total of 68,800 long positions and 48,900 short ones. Since the COT reports cannot make an accurate forecast of the market's behavior right now, and the fundamentals are practically the same for both currencies, we can only assess the technical picture and economic reports. The technical analysis allows us to expect a strong decline, and the economic reports have been significantly stronger in the United States than in the United Kingdom for quite some time now.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD is making every effort to correct lower, but the uptrend persists. We believe that the British pound doesn't have any good reason to experience long-term growth. Therefore, at the very least, we expect the pair to return to the level of 1.2513. In the near term, the price may drop to the level of 1.2605. But it would be foolish to deny that the uptrend persists, so selling without appropriate signals is risky.
On Wednesday, volatility is likely to remain at zero. The price rose to the level of 1.2726, so you may consider short positions using the Kijun-sen line as the target once the pair rebounds from this level. If it overcomes the level of 1.2726, you may consider longs using 1.2786 as a target.
As of December 27, we highlight the following important levels: 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2513, 1.2605-1.2620, 1.2726, 1.2786, 1.2863, 1.2981-1.2987. Senkou Span B (1.2646) and Kijun-sen (1.2677) lines can also be sources of signals. Signals can be "bounces" and "breakouts" of these levels and lines. It is recommended to set the Stop Loss level to break-even when the price moves in the right direction by 20 pips. The Ichimoku indicator lines can move during the day, which should be taken into account when determining trading signals. The illustration also includes support and resistance levels that can be used to lock in profits from trades.
On Wednesday, event calendars in the UK and the US are empty, so we should not expect strong movements. Most likely, we will see another movement of 30-40 pips, and its direction will depend on signals around the level of 1.2726.
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.
