Analysis of GBP/USD 5M
GBP/USD traded higher on Monday. Volatility was low again, but at least the pair moved throughout the day. Although the pound had no reason to rise. For the past three months, the pair has been in a limited price range, i.e., in a flat. Currently, we are simply observing another upward movement within this flat. No fundamental or macroeconomic reasons are needed for such a movement.
On the hourly time frame, the pair has now reached the area of 1.2691-1.2701, from which a bounce and bearish reversal are quite possible. If this happens, we will see a few days of downward movement, and it could move this way for no particular reason. This week, there will be quite a few interesting events and reports, but the only important event is the ISM Non-Manufacturing Purchasing Managers' Index in the U.S. If it turns out to be stronger than expected, we may witness the start of a new downward spiral for the British currency. It would make no sense to talk about long-term perspectives. The pair has been in a flat phase for three months. We only expect it to fall, but first, we need the flat to end.
There was only one trading signal on Monday. During the mid-US session, when it was clear that the main movement was over, the price surpassed the level of 1.2691. But now we have to highlight the area of 1.2691-1.2701, so the pair has yet to overcome any important resistance level. A decent signal near this area could be formed on Monday, but there are serious doubts that it will allow traders to make a profit, as volatility remains weak.
COT report:
COT reports on the British pound show that the sentiment of commercial traders has frequently changed in recent months. The red and blue lines, which represent the net positions of commercial and non-commercial traders, constantly intersect and, in most cases, remain close to the zero mark. According to the latest report on the British pound, the non-commercial group opened 4,400 buy contracts and 4,300 short ones. As a result, the net position of non-commercial traders increased by 100 contracts in a week. Despite the fact that the net position of speculators is growing, the fundamental background still does not provide a basis for long-term purchases of the pound sterling.
The non-commercial group currently has a total of 92,000 buy contracts and 45,600 sell contracts. The bulls have a big advantage. However, in recent months, we have repeatedly encountered the same situation: the net position either increases or decreases, the bulls or the bears either have the advantage. Since the COT reports do not provide an accurate forecast of the market's behavior at the moment, we have to scrutinize the technical picture and economic reports. The technical analysis suggests that there's a possibility that the pound could show a pronounced downward movement. The economic reports have also been significantly stronger in the United States than in the United Kingdom, but this has not benefited the dollar.
Analysis of GBP/USD 1H
On the 1H chart, GBP/USD left the sideways channel of 1.2611-1.2787 but is now trading within another sideways channel of 1.2605-1.2701. Market participants feel quite comfortable in a flat phase. The British pound is still a currency that tends to move sideways, trading in a somewhat illogical and confusing manner. On lower time frames, we regularly observe short-term trends, but it has been quite difficult to make profit from them, as the price constantly changes its direction, and volatility is also low.
As of March 5, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B line (1.2622) and the Kijun-sen line (1.2645) can also serve as sources of signals. Don't forget to set a Stop Loss to breakeven if the price has moved in the intended direction by 20 pips. The Ichimoku indicator lines may move during the day, so this should be taken into account when determining trading signals.
On Tuesday, the UK will release the second estimate of the Services Purchasing Managers' Index for February, which is hardly considered a crucial event. On the other hand, the US will release an important report on the ISM Non-Manufacturing PMI, which can provoke a good market reaction. However, the flat may still persist.
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.
