On Tuesday, GBP/USD bounced off the retracement level of 1.2238 on H1 in favor of the US dollar. As a result, the price dropped to the Fibonacci level of 127.2% at 1.2111. A rebound from this level supported the pound and initiated a new growth cycle toward 1.2238. The upward movement is weak and is based purely on technical factors. I expect the pair to resume its decline to the level of 1.2007 and close below 1.2111. The information background does little to support the pound this week. In the first two days of the week, the pound was falling but at a very slow pace. What matters most right now is the ascending trend channel on the 4-hour chart. So far, the pair has been moving within this range which makes a sharp drop very unlikely.
On Monday, the economic data from the UK was neutral. At the same time, the encouraging data from the US allowed the dollar to strengthen. The greenback continued to rise on Tuesday but its movement was weak. Today, the pound began to recover amid the lack of events in both countries. Therefore, traders stay bullish on the pair which is even more important than the information background. Anyway, it is neutral now. The upcoming events to pay attention to are the meetings of the Bank of England and the Fed.
There has been a lot of speculation in recent weeks about how central banks will end this year. As I see it, this topic has been overdiscussed and has become simply confusing for traders. Today, it is hard to make any firm conclusions about the next step of the central banks. On the contrary, a few months ago, the Fed was clearly more aggressive and the BoE was lagging behind it. Now all regulators are actively raising rates. This means that they may start to ease their policies in the coming months. That is why neither the pound nor the euro, or the dollar will get any support from the monetary policies of their central banks.
The pair settled below the retracement level of 127.2% at 1.2250 on the 4-hour chart. This makes it possible for the price to decline further toward 1.2008. The ascending trend channel confirms the bullish sentiment. The pound is unlikely to develop a strong downtrend unless the price closes below the channel.
Commitments of Traders (COT) report
Last week, the non-commercial group of traders became less bearish on the pair than a week ago. The number of long contracts dropped by 5,037 while short contracts decreased by 3,999. Overall, large market players maintain a bearish outlook on the pair as short contracts still outweigh the long ones. Therefore, institutional traders prefer to sell the pound although their sentiment has been slowly shifting toward bullish in recent months. Yet, this process is taking too long to develop. It has been going on for two months already. Still, the number of short positions is twice as high as the long ones. Based on the chart analysis, we can assume that the pound may continue to rise. For instance, the trend channel on the 4-hour chart confirms this scenario. However, the pound is not so strong from the fundamental point of view. Besides, the US dollar also has its drivers. Nevertheless, we can observe a long-awaited uptrend which is difficult to explain by COT reports.
Economic calendar for US and UK:
On Wednesday, no important events are expected either in the US or the UK. Therefore, the influence of the information background on the market will be zero today.
GBP/USD forecast and trading tips:
I recommended selling the pound with the targets at 1.2111 and 1.2007 if the price settles below 1.2238 on the 1-hour chart. The first target has been reached. It is recommended to open new short positions after a rebound from 1.2238. At the moment, it is not safe to buy the pair.