GBP/USD – 1H.
Hi dear traders!
On a 4-hour chart, GBP/USD continued its decline on Tuesday after the price had fixed above 50.0% Fibonacci correction that is 1.3792. In the morning today, the pound sterling was extending its weakness, heading towards 1.3747 and 1.3731. A bounce off any of these levels could stall a decline. Earlier, after the price closed below the downtrend line, trading sentiment changed into bearish. So, I'm expecting a further bearish move of the pound sterling. The news background was rather sparse in the UK yesterday. Among the events were speeches of some Bank of England policymakers such as Michael Saunders and Catherine Mann. Remarks of Michael Saunders, who is a member of the Monetary Policy Committee, came under the spotlight and perhaps triggered sell-offs of the sterling. The policymaker said that the level of interest rates considered to be neutral nowadays is much lower now than it used to be. Currently, the question is open whether the central bank should revive the idea of that neutral level.
Thus, traders interpreted this phrase as follows. The Bank of England rules out the scenario of scaling back monetary stimulus in the near future. Let me remind you that the economic picture in the UK is almost the same as in the US. The domestic economy is getting traction. Mr. Saunders assures that the national economy has recovered almost to the pre-pandemic levels. However, there is a fly in the ointment. The coronavirus rates are getting higher despite the fact that nearly all adults in the Kingdom have received both doses of the vaccine. Let's assume that the whole population is vaccinated in full but people still get infected. Obviously, this poses a serious threat to the economy.
Lately, there were rumors that the Bank of England might quit the bond-buying program at the near time. Nevertheless, these rumors will hardly become reality, at least in the near future. The same is going on at the Federal Reserve. Recently, market participants were speculating on the scenario of tapering the QE program. In fact, Jerome Powell did not confirm this likelihood. So, most analysts expect the US central bank to begin reducing its bond buying not until December.
GBP/USD – 4H.
According to a 4-hour chart, GBP/USD dropped off 1.3870 that is 23.6% Fibonacci level and reversed in favor of the US dollar, i.e. downwards. The price fell below 1.3791 that is 50.0% Fibonacci correction. As a result, the price may extend its fall towards 1.3746 and 1.3690. The bullish divergence has appeared close to CCI indicator. If the price closes below its low, the divergence will be cancelled.
The economic calendar for the US and the UK
UK: Treasury Select Committee Hearings (15-00 UTC)
UK: Bank of England Governor Andrew Bailey speaks (15-00 UTC)
UK: Bank of England Deputy Governor for monetary policy Ben Broadbent speaks (15-00 UTC)
UK: Bank of England Deputy Governor for marketing & banking Sir David Ramsden speaks (15-00 UTC)
UK: MPC Silvana Tenreyro speaks (15-00 UTC)
On Wednesday, the economic calendar for the US is empty. Unlike this, in the UK four policymakers of the Bank of England are due to speak today. Andrew Bailey is certainly the focal point. So, the information background for the British pound could produce some catalysts today.
COT(Commitments of traders):
According to the latest COT report on GBP/USD from August 31, market sentiment of large market players has turned slightly bullish. Last week, speculators closed 2,476 long contracts and 4,809 short contracts. All in all, the total number of long contracts which are still being held by speculators is lower than the overall number of short contracts. On the whole, speculators are still bearish about GBP/USD. Traders still find it difficult to close the pair below 1.3600. Meanwhile, the currency pair is trading higher. To sum up, a further fall of the pound sterling is not a rock-solid forecast. The market needs technical signals that have to coincide with the information in COT reports.
Outlook for GBP/USD and trading tips
Today I recommend buying GBP/USD provided that the pair rebounds from 1.3747 or 1.3731 on a 1-hour chart with a target at 1.3792. Previously, I advised you selling the sterling with targets at 1.3792 and 1.3747 on condition the currency pair closes below the trend line on a 1-hour chart. Currently, such positions should be kept open.
Terms
The Non-commercial category includes major market players: banks, hedge funds, investment funds, private, and large investors.
The Commercial category embraces commercial enterprises, firms, banks, corporations, companies that buy currency not to obtain speculative profit, but to ensure current activities or export-import operations.
The category of Non-reportable positions means small traders who do not have a significant impact on the price.
