M5 chart of GBP/USD
GBP/USD resumed growth on Wednesday, failing to settle below the important Senkou Span B line, and remains below the critical line. Therefore, we should talk about preserving the uptrend, although the previous local highs have not been updated yet. Nevertheless, the pound still finds grounds for a rather considerable growth, though there are technically no grounds. At the moment, either it will continue the upward movement, or it tries to stay in the channel of 1.2288-1.2429 until next week, which is when the meetings of the Bank of England and the Federal Reserve will take place. There has been a lot of talk lately about central bank rates and possible decisions to be made next week. I believe that even without any "surprises", the market has already worked out all of next week's decisions "in advance". The US GDP report for the fourth quarter will be released today, but it often coincides with the forecasts, so the reaction could be weak or nonexistent.
Yesterday, the pair did not have the best momentum, but it created one trading signal during the day. The pair crossed the 1.2342-1.2354 range, but it was in the middle of the US session, so the profit on this deal was not high. Traders managed to gain about 10-15 pips on it, which is better than nothing or a loss.
The latest COT report showed a decrease in bearish sentiment. During the given period, non-commercial traders opened 5,500 long positions and as many as 700 short positions. Thus, the net position increased by 4,800. This figure has been on the rise for several months, and the sentiment may become bullish in the near future, but it hasn't yet. Although the pound has grown against the dollar for the last few months, from a fundamental perspective, it is difficult to answer why it keeps rising. On the other hand, it could fall in the near future (in the mid-term prospect) because it still needs a correction. In general, in recent months the COT reports correspond to the pound's movements so there shouldn't be any questions. Since the net position is not even bullish yet, traders may continue to buy the pair over the next few months. Non-commercial traders now hold 41,500 long positions and 66,000 short ones. I remain skeptical about the pound's long term growth, though there are technical reasons for it. At the same time, fundamental and geopolitical factors signal that the currency is unlikely to strengthen significantly.
H1 chart of GBP/USD
On the one-hour chart, GBP/USD tried to break the uptrend but failed. So, now we have to wait for a new consolidation below the Kijun-Sen line, after which we need to overcome the Senkou Span B. Without this, there is no reason to expect a strong decline. It still has no specific reasons for growth, but the market stays bullish on the threshold of the Fed and BoE meetings. On January 26, the pair may trade at the following levels: 1.2106, 1.2185, 1.2288, 1.2342, 1.2429-1.2458, 1.2589, 1.2659. The Senkou Span B (1.2260) and Kijun Sen (1.2354) 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. On Thursday, there are no important events in the UK, but the US will release two reports, which can hypothetically influence the pair's movement. Of course, the GDP report for the fourth quarter will be the most important one, but the durable goods report has been attracting only a very small portion of traders' attention lately.
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.