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On the hourly chart, the GBP/USD pair turned in favor of the pound on Thursday and started a slight rise towards the 127.2% retracement level at 1.3054. Today, it reached this level. A rebound from this level would favor the dollar and could lead to a continuation of the decline towards the support zone of 1.2931–1.2892. A break above the 1.3054 level could allow for some additional growth towards 1.3151; however, I do not currently see strong reasons for a rise.
The wave situation is clear. The last completed upward wave (September 26) did not surpass the peak of the previous wave. Meanwhile, the current downward wave, which has been forming for 16 days, easily broke the low of the previous wave at the 1.3311 level. Thus, the bullish trend is considered over for now, and a bearish trend has begun. A corrective upward wave can be expected from the 1.2931 level, but signals need to form first.
On Thursday, there were few news items for the pound, and traders continued to digest the UK inflation data and assess the Bank of England's monetary policy prospects for the end of 2024. The conclusions among analysts were not optimistic, suggesting that the Bank of England is likely to cut rates twice before the end of the year, possibly by more than 50 basis points. The ECB also cut interest rates yesterday, highlighting that low inflation justifies not maintaining rates in the "restrictive" zone. Therefore, the Bank of England is currently lagging significantly behind both the ECB and the Fed. This is negative for the British economy, as investments in the U.S. and European markets become more attractive. At the same time, it is also negative for the pound since the British regulator may ease monetary policy faster than expected. Thus, I currently see no grounds for a strong appreciation of the British currency, and as of now, the bulls have been unable to close above the 1.3054 level.
On the 4-hour chart, the pair has consolidated below the 1.3044 retracement level, suggesting a further decline towards the next retracement level of 61.8% at 1.2745. For more than a week, a bullish divergence has been building in both indicators, which suggested a possible rebound from the 1.3044 level. However, this rebound has not occurred. Now, the bulls cannot close above this level. The bears are indicating that the trend has shifted to bearish, thus ignoring the bullish divergences. A correction may begin, but likely later.
Commitments of Traders (COT) Report:
The sentiment of the "Non-commercial" category of traders has not changed in the last reporting week and remains bullish. The number of long positions held by speculators decreased by 3,803, while short positions decreased by 3,173. Thus, for two weeks, professional players have been reducing long positions and increasing short positions, but now they are once again buying the pound. Bulls still have a solid advantage. The gap between the number of long and short positions is 93,000: 158,000 versus 65,000.
In my view, the pound still faces downward prospects, but the COT reports currently suggest otherwise. Over the past three months, the number of Long contracts has increased from 135,000 to 158,000, while the number of short positions has grown from 50,000 to 65,000. I believe that over time, professional players will reduce their long positions or increase short positions, as all potential factors for buying the British pound have already been priced in. The technical analysis indicates that this process could start soon.
News Calendar for the US and UK:
UK – Retail Sales Change (06:00 UTC).
US – Building Permits Change (12:30 UTC). US – Housing Starts (12:30 UTC).
The economic events calendar for Friday contains a few noteworthy items. The UK report supported the bulls, but they were unable to close above the 1.3044–1.3054 levels. The influence of the information background on market sentiment in the second half of the day may be weak, with the advantage potentially shifting back to the bears.
Forecast for GBP/USD and Trader Advice:
Sales of the pair were possible on a rebound from the 1.3425 level on the hourly chart with targets at 1.3357, 1.3259, 1.3151, and 1.3054. All targets have been met. New positions could have been opened after closing below 1.3044 on the 4-hour chart with a target of 1.2931. I do not yet see any potential signals for buying.
Fibonacci levels are built based on 1.2892–1.2298 on the hourly chart and 1.4248–1.0404 on the 4-hour chart.
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