GBP/USD 5-Minute Analysis

On Thursday, the GBP/USD currency pair showed overall appreciation, despite experiencing fluctuations throughout the day with two notable rises. The British pound lacked fundamental reasons for strengthening earlier in the week—on both Tuesday and Wednesday—and the same was true for Thursday. However, an ongoing upward correction on the daily timeframe is currently driving sterling's rise, even in the absence of solid justification.

At first glance, the macroeconomic data released from the UK seemed positive. This is technically correct; GDP for Q4 exceeded forecasts by 0.2% on a quarterly basis, and industrial production surpassed expectations by 0.3% on a monthly basis. Both reports did come in better than anticipated, which should theoretically support the pound. However, the economic growth in Britain remains largely nominal rather than substantial. For example, industrial production grew by 0.5% in December, following a contraction of 0.5% the previous month. This suggests that UK economic reports still do not provide solid evidence of recovery. Instead, the pound appears to be benefiting from favorable market conditions once again. We had previously cautioned that the correction could continue despite the circumstances, but we anticipated it would be complicated, featuring constant pullbacks and erratic movements.

On the 5-minute timeframe, two trading signals occurred yesterday. During the European session, the price bounced back from 1.2511 and subsequently dropped 45 pips lower. Under no circumstances could a loss have occurred on this short position. Unfortunately, the price fell just 6-7 pips short of reaching the target level. As a result, a strong buy signal was not generated, leaving traders without a clear reason to exit their short trades. Another signal formed around the same 1.2511 level, but by that time, the upward momentum had already begun to fade.

COT Report

The COT reports for the British pound indicate that sentiment among commercial traders has been highly unstable over the past several years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, frequently intersect and often hover near the zero mark. This suggests that buy and sell positions are nearly balanced at this time.

On the weekly timeframe, GBP/USD initially broke above the 1.3154 level but subsequently fell back to and breached the trendline. This break of the trendline strongly suggests that the pound is likely to continue its decline. However, a bounce from the previous local low on the weekly timeframe raises the possibility that the market may be entering a range-bound phase, characterized by flat movement.

According to the latest COT report, the Non-commercial group (large institutional traders) closed 16,400 long contracts and only 2,900 short contracts. As a result, the net position of non-commercial traders decreased by 13,500 contracts, which is a negative sign for the pound.

The fundamental backdrop continues to offer no justification for long-term purchases of GBP, and the currency remains at risk of resuming its broader downtrend. Therefore, the net position of non-commercial traders may continue to decline, indicating a further drop in demand for the British pound.

GBP/USD 1-Hour Analysis

On the hourly timeframe, GBP/USD has completed another short-term downtrend. However, this may not be the last in a series of trend shifts. We still see no fundamental reasons to expect sustained strength for the pound in the long term. On higher timeframes, we recommend against long positions, as the pound's fundamental position continues to be weak. At best, sterling can anticipate only a correction.

For February 14, we highlight the following key levels: 1.2052, 1.2109, 1.2237-1.2255, 1.2331-1.2349, 1.2429-1.2445, 1.2511, 1.2605-1.2620, 1.2691-1.2701, and 1.2796-1.2816. Additionally, the Senkou Span B (1.2399) and Kijun-sen (1.2436) levels may also provide trading signals. A stop loss should be moved to breakeven after the price moves 20 pips in the right direction to protect against potential losses in case of a false signal. Traders should be aware that the Ichimoku indicator lines may shift throughout the day when identifying signals.

No major events are scheduled in the UK on Friday, while in the U.S., reports on retail sales and industrial production will be released. These are relatively significant reports that could trigger a market reaction. However, regardless of the fundamentals, the pair appears poised for a complex corrective rise.

Illustration Explanations:

• Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
• Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
• Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
• Yellow Lines: Trendlines, trend channels, or any other technical patterns.
• Indicator 1 on COT Charts: Represents the net position size for each category of traders.