GBP/USD 5-Minute Analysis
On Thursday, the GBP/USD pair continued to trade downward. Like the euro, the British pound had no significant reasons to fall during the day. However, this is irrelevant. We have often stated that the pound sterling is overbought and has risen over the past two years primarily due to expectations of future monetary policy easing by the Federal Reserve. The market is priced in the entire rate-cut cycle "in advance." We are now witnessing a reversal because factors like the Bank of England easing or the UK's and US's economic states have been overlooked for the same two years.
At first glance, it seems paradoxical that the Fed cuts rates while the dollar strengthens. However, this is precisely the scenario we warned traders about throughout 2024. Thus, the pair no longer requires specific macroeconomic or fundamental reasons to trend downward almost daily.
On Thursday, there were no significant events in the UK, while the US saw minor reports on jobless claims and new home sales. We strongly doubt that these reports caused the market to continue buying dollars after two months of virtually uninterrupted growth. Both reports were not optimistic enough to justify an additional 70-pip rally for the dollar.
Further declines should be expected now that the pound has broken out of its horizontal channel. The nearest target is the 1.2516 level. Yesterday, two solid signals were generated near the critical line, though intraday movements remained somewhat chaotic. However, the most critical outcome is that the price broke through the 1.2605–1.2620 area, signaling potential further declines.
COT Report
The COT reports on the British pound show that commercial traders' sentiment has been highly volatile in recent years. The red and blue lines representing the net positions of commercial and non-commercial traders frequently intersect and usually hover near the zero mark. The most recent downward trend coincided with the red line being below zero. Currently, the red line is above zero.
According to the latest COT report, the non-commercial group closed 700 BUY contracts and 11,700 SELL contracts. As a result, the net position of non-commercial traders grew by 11,000 contracts over the week. While the market is not rushing to sell the pound sterling in the medium term, the movements of the past six weeks are encouraging.
The fundamental backdrop still provides no basis for long-term pound purchases, and the pound has a realistic chance of resuming its global downtrend. However, on the weekly timeframe, there is an upward trendline. Until this trendline is broken, long-term expectations of a decline in the pound remain speculative. For now, the pound continues to demonstrate significant resilience against the dollar.
GBP/USD 1-Hour Analysis
The GBP/USD pair maintains a generally bearish bias on the hourly timeframe. The previous upward trend has been nullified, and further declines in the pound are expected to be significant and prolonged. The last correction was flat and has already concluded. A new corrective flat also ended. No fundamental reasons justify substantial growth in the pound; even the UK inflation report failed to support it.
For November 22, we highlight the following important levels: 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2796-1.2816, 1.2863, 1.2981-1.2987, and 1.3050. Senkou Span B (1.2803) and Kijun-sen (1.2643) lines can also be sources of signals. Setting the Stop Loss level at breakeven when the price passes 20 pips in the right direction is recommended. The Ichimoku indicator lines can move during the day, which should be considered when determining trading signals.
On Friday, the UK will release PMI reports, though it's worth noting that S&P indices hold limited significance for the dollar compared to US ISM reports. The UK will also publish a retail sales report, while the US will release the University of Michigan consumer sentiment index.
Chart Explanations:
Support and resistance levels: thick red lines around which movement may end. They are not sources of trading signals.
Kijun-sen and Senkou Span B lines: Ichimoku indicator lines transferred from the 4-hour to the 1-hour timeframe. These are strong lines.
Extreme levels: thin red lines where the price previously rebounded. They are sources of trading signals.
Yellow lines: Trend lines, trend channels, and other technical patterns.
Indicator 1 on COT charts: The net position size for each category of traders.
