GBP/USD 5-Minute Analysis
The GBP/USD currency pair showed significant declines on Wednesday and Thursday, interspersed with a strong upward correction. The British pound once again displayed notable resilience against the dollar, rising in situations where it could have avoided doing so. However, the Bank of England clarified the situation. The results of its meeting can be considered dovish, at least because the number of Monetary Policy Committee members voting "for" a rate cut exceeded expectations. It turned out that three members supported easing, and only two more votes were needed for the rate to be lowered. This reflects a more dovish stance than the market anticipated. We had repeatedly warned that the BoE would also start lowering its rate. It may proceed slowly or infrequently, but it will. Since the market has already priced in the entire cycle of monetary easing by the Federal Reserve, it now has the opportunity to react to the factor of rate cuts in the UK. Therefore, we believe the pound will continue its decline.
Midday, the pair confused traders considerably because the pound was rising steadily before the BoE's announcement. The reasons for this rise remain unclear, as the euro showed a much weaker correction during the same period. Due to this rally, the price initially broke above the 1.2605–1.2620 area and the Kijun-sen line, only to resume its decline and generate similar sell signals later. In any case, entering trades just before the BoE's announcement was not advisable. Once the results were revealed, it became clear that the pound had strong prospects for further decline. As a result, we believe traders could have acted on the last sell signal of the day. By the end of the session, the pair dropped to the 1.2516 level, delivering traders at least 75 pips of profit.
COT Report
COT reports for the British pound show that the sentiment among commercial traders has been constantly shifting in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently intersect and, in most cases, hover near the zero mark. Recently, the price broke above the 1.3154 level and then fell to the trendline. We expect the price to consolidate below the trendline, confirming a shift to a downward trend.
According to the latest report on the British pound, the "non-commercial" group opened 4,700 BUY contracts and closed 300 SELL contracts. As a result, the net position of non-commercial traders increased by 7,700 contracts over the week. However, our overall expectations remain the same.
The fundamental background still does not justify long-term purchases of the British pound. The currency has significant potential to resume a global downtrend. While the trendline has prevented further declines, should the price fail to break below it, we might see another upward movement, potentially pushing the pound above the 1.3500 level. But what fundamental factors currently support such growth? The pound cannot rise indefinitely without a solid basis.
GBP/USD 1-Hour Analysis
On the hourly timeframe, the GBP/USD pair maintains an overall bearish sentiment, with the corrective phase appearing to be complete. We still do not see any drivers for the British pound to show growth, apart from the technical necessity of occasional corrections. The BoE and Fed meetings could have negatively impacted the dollar, but ultimately, they only weighed on the pound. In the medium term, we expect the British currency to decline.
For December 20, the following key levels are identified: 1.2429–1.2445, 1.2516, 1.2605–1.2620, 1.2691–1.2701, 1.2796–1.2816, 1.2863, 1.2981–1.2987, and 1.3050. The Senkou Span B line (1.2708) and Kijun-sen (1.2623) may also serve as sources of signals. A Stop Loss level is recommended to be set to breakeven once the price moves 20 pips in the correct direction. Note that the Ichimoku indicator lines may shift throughout the day, which should be considered when identifying trading signals.
The UK is scheduled to release a retail sales report on Friday, while the US will publish a series of less significant reports. We highlight only the PCE index (core Personal Consumption Expenditures price index) and the University of Michigan Consumer Sentiment Index.
Illustration Explanations:
Support and Resistance Levels (thick red lines): Key areas where price movement might stall. Not sources of trading signals.
Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the H4 timeframe to the hourly chart, serving as strong levels.
Extreme Levels (thin red lines): Points where the price has previously rebounded. They can serve as trading signal sources.
Yellow Lines: Trendlines, channels, or other technical patterns.
Indicator 1 on COT Charts: Reflects the net position size of each trader category.
