M5 chart of GBP/USD
GBP/USD managed to avoid sharp losses on Monday, but still fell several dozens of points. In general, it moved mostly sideways than downward, so we can say that the market "recovered" from the events of the previous week, which triggered the fall of the British currency by more than 300 pips. There was almost no macro data yesterday. The only thing worth mentioning was the UK construction PMI, which fell by 0.4 points to 48.4 in January. The pound lost about 40 points after this report, but globally it did not influence the alignment of forces between the pound and the dollar. This week, fundamentals and macroeconomics might be weak, so we will probably witness a flat or movement with just a short trend in the coming days.
Speaking of trading signals, they were also quite dull. The first and only trading signal was formed in the middle of the US trading session, when the price rebounded from 1.2007. After that it managed to go up about 20 pips, but anyway the signal was formed too late to work it out. Therefore, there were no deals on Monday. After the pair's fall, lines of the Ichimoku indicator have not yet had time to "catch up" to the price, so they are much higher and almost do not participate in the process of forming a signal.
The recent COT report on the pound sterling unveiled that the bearish sentiment became weaker. During the week, non-commercial traders closed 6,700 buy contracts and 78,500 sell contracts. Thus, the net position of non-commercial traders increased by 800. During the last few months, the net position was increasing quite stably. The sentiment of big traders could become bullish in the near future. It is still very hard to explain why the pound sterling increased so much against the US dollar. In the mid-term, the British pound could drop as it needs correction. In general, the recent COT reports have been corresponding to the pound's movement. Since the net position is not bullish anymore, traders may buy the asset in the next few months. By the moment, non-commercial traders have opened 35,000 longs and 59,000 shorts. We do not expect long-lasting growth in the pound sterling. Although it has technical reasons for that, the fundamental and geopolitical factors do not presuppose a strong and fast increase.
H1 chart of GBP/USD
On the one-hour chart, GBP is still moving downward and it is difficult to say what can support the British currency this week. Of course, a purely technical pullback might start and we are likely to see it this week. But at the same time, several technical indicators are signaling the pound's decline. In particular, the Double Top and consolidation below the critical line on the 24-hour chart. For February 7, here are the following important levels: 1.1760, 1.1874, 1.1974-1.2007, 1.2106, 1.2185, 1.2288, 1.2342. Senkou Span B (1.2354) and Kijun-Sen (1.2202) lines can also be sources of 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 Tuesday, several members of the Bank of England's Monetary Committee will deliver speeches in the UK and Federal Reserve Chairman Jerome Powell will be speaking in the US. We are not expecting any important information from these officials since we've already heard everything from the central banks last 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.