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On the hourly chart, the GBP/USD pair rebounded from the support zone of 1.2709–1.2734 on Tuesday, showing some upward movement. However, the resistance zone at 1.2788–1.2801 was not reached, and no sell signals were formed. The pound has been trading sideways for three days. Currently, trading is possible only on rebounds from the boundaries of the horizontal channel, but I believe it's better to wait for the pair to exit the range. A close below the range would signal a renewed decline for the pound toward the support zone at 1.2611–1.2620.
The wave structure raises no questions. A new upward wave broke the peak of the previous wave, while the last completed downward wave failed to break the previous low. This suggests the potential end of the bearish trend and the beginning of a bullish one. However, I believe the bullish trend, if it materializes, could be weak. Last week, bulls showed strong initiative despite disregarding the informational background.
On Tuesday, there was little news, but today the U.S. market offers some interesting data. The U.S. inflation report is critical not only on its own but also in terms of shaping the Fed's future rate decisions. The market widely expects further easing of monetary policy, but this depends on the level of inflation in November. Inflation in the U.S. has been rising slowly but remains above the Fed's 2% target. Last month, inflation accelerated from 2.4% to 2.6%, and this month, it may rise to 2.7%. Such an acceleration could prompt the FOMC to maintain rates at their current level, disappointing traders who anticipate a rate cut. If inflation accelerates in November, I expect the U.S. dollar to strengthen further, leading to a close below the 1.2709–1.2734 zone and a subsequent decline toward 1.2620.
On the 4-hour chart, the pair returned to the 61.8% Fibonacci retracement level at 1.2728 and consolidated above it. This suggests the potential for further growth toward the next retracement level at 50.0% (1.2861). However, on the hourly chart, the pair remains stuck in a sideways range, which currently takes precedence. A break below 1.2728 would signal the resumption of the bearish trend visible on the 4-hour chart.
The sentiment of the "Non-commercial" category of traders became less bullish in the last reporting week. Long positions decreased by 403 positions, while short positions increased by 1,905 positions. Bulls still have the upper hand, but their advantage has been waning in recent months. The gap between long and short positions is now just 19,000: 98,000 vs. 79,000.
In my view, the pound faces further downside potential, as COT reports indicate strengthening bearish positions almost every week. Over the past three months, the number of long positions has dropped from 160,000 to 98,000, while short positions have risen from 52,000 to 79,000. I believe professional traders will continue reducing longs or increasing shorts as the factors supporting pound purchases have already been priced in. Graphical analysis also supports the pound's decline.
The economic calendar contains only one entry for Wednesday, but it is highly significant. The informational background could strongly influence trader sentiment in the latter half of the day.
Fibonacci levels are built between 1.3000–1.3432 on the hourly chart and 1.2299–1.3432 on the 4-hour chart.
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