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On the hourly chart, the GBP/USD pair continued a moderate upward movement on Friday toward the 1.3357 level. This time, the bulls couldn't easily reach their target, but their dominance in the market remains undeniable. A decline in the price toward the 161.8% Fibonacci level at 1.3259 on Monday morning should not be misleading. The trend for the pair remains "bullish." A breach below the 1.3259 level would suggest a continued decline toward the 1.3151 level.
The wave structure currently doesn't raise any concerns. The last completed downward wave (September 6–11) broke below the low of the previous wave, while the current upward wave has surpassed the high of the previous wave, located at the 1.3234 level. Thus, the "bearish" trend ended prematurely. At this point, I don't see any signs of a sideways movement that could provide relief for the U.S. currency.
On Friday, the pound could have continued to gain following the FOMC and Bank of England meetings, especially since the UK retail sales report exceeded traders' expectations. However, monetary policy remains the key factor. Since the market fully priced in this factor last week and received a comprehensive overview of potential scenarios from both central banks for the coming months, some correction might be due. Today, business activity indices will be released in both the UK and the US. I don't expect a strong reaction from traders to these reports. If they have fully digested the Bank of England and FOMC decisions, some traders may start taking profits from their buy orders. Therefore, a correction this week appears probable. A new challenge to the U.S. currency is expected next week when new data on the U.S. labor market and unemployment figures are released.
On the 4-hour chart, the pair rebounded from the 1.3044 level and rose to the 76.4% Fibonacci level at 1.3314. The CCI indicator has already registered two "bearish" divergences, and another one has appeared on the RSI indicator. The pound is overbought, as indicated by the RSI back in August. Since then, the pound has barely declined. A rebound from the 1.3314 level could lead to a decline toward the 1.3044 level.
The sentiment among the "Non-commercial" trader category became significantly less "bullish" during the last reporting week. The number of long positions held by speculators decreased by 17,250, while short positions increased by 10,059. Thus, for the second consecutive week, professional traders are reducing their long positions and increasing their short positions. Despite this, the pound hasn't dropped much during this period. Therefore, a decline appears quite likely. The bulls still hold a strong advantage, with the number of long positions at 125,000 compared to 62,000 short positions, indicating a gap of 63,000.
In my opinion, the pound still has the potential to fall, but the COT reports currently suggest otherwise. Over the last three months, the number of long positions has risen from 102,000 to 125,000, while the number of short positions has increased from 58,000 to 62,000. I believe that over time, professional traders will start to reduce their long positions or increase their short positions since all possible factors for buying the British pound have already been priced in. However, technical analysis still indicates a "bullish" trend.
On Monday, the economic calendar includes four relatively minor entries. The impact of the news releases on market sentiment for the remainder of the day will be minimal.
The Fibonacci levels are plotted between 1.2892–1.2298 on the hourly chart and between 1.4248–1.0404 on the 4-hour chart.
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