Analysis of GBP/USD 5M
GBP/USD also traded lower on Monday, but on the higher timeframe, it is clear that the price has spent the last few days in a sideways channel between the levels of 1.2605 and 1.2726. The British pound might have already been in a correction, but on Friday, the pair sharply grew, which, as usual, was illogical, so now it is just in a flat phase. Yesterday, there were no significant events in either the UK or the US. One could assume that the speeches of Luis de Guindos and Christine Lagarde triggered the euro's fall, which, in turn, pulled down the British pound. However, neither of them revealed any important information. Nevertheless, the euro and the pound may and should continue to move downward. Any other movement would seem illogical.
Speaking of trading signals, things were not very good. Since the price was basically flat during the European session, three signals were generated near the critical line, two of which turned out to be false signals. Fortunately, these were both buy signals and they duplicated each other. Therefore, the first long position was unprofitable, but the second short position brought profit as the price dropped to the range of 1.2605-1.2620 by the evening. Thus, it wasn't possible to earn a lot, but traders couldn't have lost either.
COT report:
COT reports on the British pound also align perfectly with what's happening in the market. According to the latest report on GBP/USD, the non-commercial group opened 18,000 long positions and closed 200 short ones. Thus, the net position of non-commercial traders increased by another 18,200 contracts in a week. The net position indicator has been steadily rising over the past 12 months, but it has been firmly decreasing since August. In recent weeks, the pound has traded higher, and large players are gradually increasing their long positions. However, we still believe that the pound will start a pronounced downward movement.
The British pound has surged by a total of 2,800 pips from its absolute lows reached last year, which is an enormous increase. Without a strong downward correction, a further upward trend would be entirely illogical (if it is even planned). We don't rule out an extension of an uptrend. We simply believe that a substantial correction is needed first, and then we should assess the factors supporting the US dollar and the British pound. A correction to the level of 1.1844 would be enough to establish a fair balance between the two currencies. The non-commercial group currently holds a total of 61,300 longs and 69,200 shorts. In general, there is currently a balance between bulls and bears.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD has yet to enter a bearish correction, which would be the most logical scenario. We still expect the pound to fall and consider it excessive and illogical for the pair to continue its upward movement. However, the market believes otherwise, so this type of movement may persist. At the moment, the price is in a flat.
Today, we can expect a new upward movement, as the price bounced off the 1.2605-1.2620 range, which serves as the lower line of the sideways channel. It is quite possible for the pair to rise to the level of 1.2726. If it consolidates below 1.2605, we can expect the pair to fall to the Senkou Span B line or even slightly lower.
As of December 5, we highlight the following important levels: 1.1927-1.1965, 1.2052, 1.2109, 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2520, 1.2605-1.2620, 1.2726, 1.2786, 1.2863. The Senkou Span B line (1.2554) and Kijun-sen (1.2665) 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 Tuesday, the UK will release the final assessment of the Services Purchasing Managers' Index (PMI) for November. In the United States, the S&P index for the services sector will also be published, but traders should focus on the ADP report and ISM indices. Therefore, we expect stronger movement in the second half of the day than in the first.
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.
