GBP/USD - 24H.
The GBP/USD currency pair has adjusted by 560 points over the past month and this is already something to talk about. Although at the moment, the downward correction in size does not even reach 38.2% by Fibonacci from the last round of the upward movement, which lasted 5 months. The price has entered the Ichimoku cloud, so a formal downward trend has not yet been formed on the 24-hour timeframe. There is a high probability that a rebound will follow from the 38.2% Fibonacci level, which will lead to the resumption of the upward trend. Although in the case of the pound, we would have bet on a further fall. Recall that the pound has been growing in the last year, confusing all traders and analysts. The British currency was affected by the same factors as the euro. However, there were many more real and potential problems in Britain during this period. And since the beginning of 2021, there have been even more of them, starting from the collapse of import and export indicators with the European Union, ending with the third "lockdown". Thus, the basis of the pound's growth all this time (it grew in contrast to the euro and the first two months of 2021) is still a mystery. We assumed that it was all about the "speculative" factor, which was amplified by the effect of the factor of increasing the money supply in the United States. But the "speculative" factor will not work for the pound forever. Thus, we would just make a forecast that the pound will continue to fall in price in 2021. But it should be understood that the same factor of pumping the US economy with money this year can provoke a new fall in the dollar and, accordingly, new growth in the pound.
COT report.
During the last reporting week (March 16-22), the GBP/USD pair fell by only 37 points. However, this drop is as conditional as the rise a week earlier. 37 points are the distance that the pair travels in about one hour. Thus, it is impossible to say that the pair fell significantly during the reporting week. But the COT report shows quite serious changes. Non-commercial traders closed 3.2 thousand buy contracts and opened 4.4 thousand short contracts during the reporting week. Thus, the net position on the pound decreased immediately by 7.6 thousand, which is quite a lot and reflects a strong weakening of the "bullish" mood among professional traders. Thus, although it is the pound sterling that shows not such a strong fall (which is seen in the illustration), it is its COT reports that more eloquently signal the end of the upward trend. However, an assumption should also be made here. Over the past 6-8 months, the green and red lines of the first indicator often changed the direction of movement, so here it is just impossible to say that the end of the upward trend was brewing for a long time. In general, the situation for the British currency remains more complex and confusing than for the euro. Given the fact that much will depend on the US economy, both the euro and the pound can resume growth.
During the current week, several important macroeconomic reports were published in the UK. For example, on Monday, the unemployment report was released, which showed a decline in January from 5.1% to 5.0%, although forecasts predicted growth. At the same time, in February, the number of applications for unemployment benefits increased significantly – 86.6 thousand. Thus, by the end of February, we can expect an increase in the main indicator of unemployment. The UK consumer price index was a big disappointment, as it slowed from 0.7% y/y to 0.4% y/y. Core inflation also declined from 1.4% y/y to 0.9% y/y. The indices of business activity in the services and manufacturing sectors increased, however, they are less important than inflation or unemployment. Retail sales in February increased less than expected by experts. And three speeches by Bank of England Governor Andrew Bailey did not give the markets any new information. Thus, both technical factors, and macroeconomic, and COT reports now speak in favor of a very likely continuation of the fall of the pound sterling. The opposite is only one factor, the factor of an additional 6-7 trillion dollars that can be poured into the American economy in the coming months.
Trading plan for the week of March 29-April 2:
1) The pound/dollar pair is doing its best to continue the downward trend. Thus, it will be possible to resume trading for an increase on the 24-hour timeframe not earlier than the price-fixing above the critical line. On lower timeframes, purchases can be considered when forming clear upward trends. Most of the factors now speak in favor of continuing the downward movement.
2) Sellers have taken the first step towards the downward trend and continue to push the pair down. At the moment, there are more chances for a further drop in quotes. The nearest targets are the levels of 1.3640 and 1.3577. The bears also need to try hard to consolidate the pair below the Senkou Span B line (1.3712), and further prospects for the pound/dollar depend on this.
Explanation of illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced before.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.
