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02.10.2022 08:44 AM
Analysis of the trading week of September 26-30 for the GBP/USD pair. COT report. The pound recovered by 800 points, what's next?

Long-term perspective.

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The GBP/USD currency pair increased 350 points during the current week. It went up 800 points from its last low and ended up near the critical Kijun-sen line in the end. That is, after the strongest growth, the pound managed to adjust in half to Kijun-sen, which preserves the prospects of a downward trend. We noted during the week that such strong growth could be the beginning of a new upward trend. Buy signals began to appear on the lower TF, but, as we can see, everything is stable and still on the 24-hour TF.

It should be noted that the pound fell at the very beginning of the week. At the same time, the opinions of experts were divided. Someone believes that such a collapse of the British currency was associated with the tax innovations of Liz Truss and Kwasi Kwarteng, and someone – that it was an inertial movement. We believe that the second option is correct. The pound has been falling for a long time, and the news about a possible tax cut is not so important that the pound falls by 500 points per hour. Therefore, in general, the following conclusion can be drawn: if the price manages to overcome the critical line, the chances of forming a new upward trend will increase and will be more than 50%. After all, the pound has already fallen too much and is heavily oversold, and the downward trend cannot persist forever. At the same time, the current geopolitical and fundamental background may continue to have a devastating impact on all risky currencies, including the pound. Let's remember why the pound was falling in 2022 at all. The military conflict in Ukraine began, and relations between Russia and the UK began to deteriorate. They were completely destroyed, sanctions were imposed, the top officials of both countries exchanged threats of nuclear strikes, the British Prime Minister was replaced, and Liz Truss was already collecting votes in favor of declaring a vote of no confidence. In addition, the Fed raised the rate faster and stronger than the Bank of England. If political news can be considered secondary, it is impossible to argue with geopolitics and stakes. If the conflict in Eastern Europe continues to flare up, the pound may resume its downward trend. But from the point of view of "technology," Kijun-sen is of great importance now.

COT analysis.

The latest COT report on the British pound was very eloquent again. During the week, the non-commercial group opened 18.5 thousand buy contracts and 10.1 thousand sell contracts. Thus, the net position of non-commercial traders increased by another 8.4 thousand, which is quite a lot for the pound. One could assume that the actions of major players and the movement of the pound have finally begun to coincide, but the report comes out three days late and does not include the last three days of trading when the pound showed growth. The net position indicator has been actively falling again in recent weeks, and the mood of major players remains "pronounced bearish," which is seen by the second indicator in the illustration above (purple bars below zero = "bearish" mood). It has started a new growth, and the British pound can count on growth. But, if we recall the situation with the euro currency, there are doubts that we can expect strong pair growth based on the COT reports. How can you count on it if the market buys the dollar more than the pound? The non-commercial group has opened a total of 106 thousand sales contracts and 59 thousand purchase contracts. The difference, as we can see, is still big. The euro cannot show growth in the "bullish" mood of major players, and the pound will suddenly be able to grow in a "bearish" mood. We remain skeptical about the long-term growth of the British currency.

Analysis of fundamental events.

There were no interesting events or publications in the UK this week. The GDP report for the second quarter was published on Friday, but this was the third, final estimate, which showed growth of 0.2% with forecasts of -0.1%. The value of the first quarter was also revised up to 0.7% (upward). It would seem that such data could support the pound, but it was on Friday that it did not show any growth at the end of the day. The macroeconomic statistics from overseas on the same Friday, which theoretically could extinguish the desire of the market to buy, were secondary. The personal income and expenses of the American population are not an indicator that can affect the movement of a pair when it passes 200-300 points every day. The consumer sentiment index from the University of Michigan is an interesting indicator, but its value has hardly changed compared to the previous month. Thus, this week, in principle, there were no good reasons either for the strong growth of the pound or the strong growth of the dollar.

The trading plan for the week of October 3–7:

1) The pound/dollar pair as a whole maintains a long-term downtrend and is located below the critical line. Therefore, purchases are still not relevant now. It is still necessary to understand what it was last week: groundwork for a new trend or an accident that was caused by an equally strong fall on Monday? Fixing above the critical line will allow cautious and small purchases to be considered.

2) The pound sterling has made a significant step forward but remains in a position where it is difficult to wait for strong growth. If a rebound follows from the critical line, the fall can quickly and cheerfully resume with targets in the area of 1.0632–1.0357.

Explanations of the illustrations:

Price levels of support and resistance (resistance/support), Fibonacci levels – targets when opening purchases or sales. Take profit levels can be placed near them.

Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).

Indicator 1 on the COT charts is the net position size of each category of traders.

Indicator 2 on the COT charts is the net position size for the "Non-commercial" group.

Paolo Greco,
الخبير التحليلي لدى شركة إنستافوركس
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