M5 chart of GBP/USD
The GBP/USD started a miniscule correction on Friday. On the one hand, there was no reason for it to sharply fall since there was no fundamental or macroeconomic background. On the other hand, the British pound significantly grew in recent weeks, so a technical correction would be logical. However, last week the U.K. Supreme Court gave unexpected and negative support to the British pound by rejecting Scotland's request to hold an independence referendum in 2023. The court ruled that Scotland's parliament does not have the legislative competence to hold a "consultative referendum" on independence next year, which Nicola Sturgeon was supposed to hold in September 2023 to understand what percentage of the country's population supports "Scexit". However, this event has already been worked out by the market, so now nothing can stop the pound from entering a correction. This week, all the main events are in the second half of the week. Settling below the ascending trend line may signify the long-awaited downward movement.
When it comes to trading signals on Friday, the 5-minute chart shows that it was very complicated and confusing. The pair was flat in the Asian and European sessions, and the general volatility of the day was very low. There was no trend movement, so no wonder there were a lot of signals around the 1.2106 level. Naturally, all of them turned out to be false. Therefore, traders could try to use one or two of the first signals, most likely, they got a loss on those trades, after which trading should have been stopped, since the first two signals were definitely false. Even Stop Loss could not be set to breakeven on them.
The latest Commitment of Traders (COT) report on GBP logged a slight decrease in bearish sentiment. In the given period, the non-commercial group closed 1,900 long positions and 8,800 short positions. Thus, the net position of non-commercial traders increased by 7,000. The net position is gradually growing during the last months, but the sentiment of the big players is still bearish. The pound has been rising in recent weeks, but so far it does not seem that it is preparing for a long-term uptrend. And, if we remember the euro's situation, then based on the COT reports, we can hardly expect a surge in price. The demand for the US currency remains very high, and the market, as it seems, is just waiting for new geopolitical shocks so it can return to buying the dollar. The non-commercial group now has a total of 67,000 shorts and 34,000 longs opened. As we can see, there is a wide gap between them. As it turns out the euro is now unable to show growth when market sentiment is bullish. When it comes to the total number of long and short positions, here bulls have an advantage of 17,000. Still, this is not enough for the sterling to increase. Anyway, we are still skeptical about the pound's long-term growth although the technical picture shows otherwise.
H1 chart of GBP/USD
The price resumed the uptrend on the one-hour chart, and it still doesn't cause any questions or doubts. However, we still believe that the British currency has grown too much in recent weeks, which is not quite in line with the fundamental and macroeconomic background. So we expect that the pair will cross the trend line and fall. On Monday, the pair may trade at the following levels: 1.1760, 1.1874, 1.1974-1.2007, 1.2106, 1.2185, 1.2259, 1.2342. The Senkou Span B (1.1680) and Kijun Sen (1.1963) lines may also generate signals. Pullbacks and breakouts through these lines may produce signals as well. A Stop Loss order should be set at the breakeven point after the price passes 20 pips in the right direction. Ichimoku indicator lines may move during the day, which should be taken into account when determining trading signals. In addition, the chart does illustrate support and resistance levels, which could be used to lock in profits. There are no important events or reports for Monday in the UK and the USA. Therefore, traders will have nothing to react to. The pair can continue to correct and the movement may not be strong, as all the most important events are scheduled for the second half of the week.
What we see on the trading charts:
Price levels of support and resistance are thick red lines, near which the movement may end. They do not provide trading signals.
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, moved to the one-hour chart from the 4-hour one. They are strong lines.
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 reflects the net position size of each category of traders.
Indicator 2 on the COT charts reflects the net position size for the non-commercial group.