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On the hourly chart, the GBP/USD pair rebounded twice from 1.2517 on Tuesday and resumed its upward movement towards 1.2611. A rebound from these levels will favor the US currency and lead to some decline towards 1.2517. Holding above the level of 1.2611 will increase the probability of further growth towards the next Fibonacci level of 23.6%—1.2690.
The wave situation remains unchanged. The last upward wave ended on May 3 and did not surpass the peak of the previous wave, while the new downward wave has likely already been completed and has yet to reach the low as of April 22. Thus, the trend for the GBP/USD pair remains "bearish" (no matter how strange it may sound), with only one doubtful sign of its completion. If the new upward wave that started on May 9 breaks the peak on May 3, we can conclude the end of the "bearish" trend. However, the new upward wave may also be quite weak. In that case, doubts about the bulls' ability to continue their attack will remain.
Yesterday's reports on unemployment and wages in the UK ultimately led to the pound's growth. Also, support for the bulls was provided by the US Producer Price Index, which turned out to be quite contradictory as it increased more than expected. Today, the US Consumer Price Index will be released, from which traders expect a slight slowdown. Jerome Powell's words may take on a new hue if inflation decreases in April. The market may believe that inflation in 2024 will resume its slowdown, and the Fed will still begin QE tapering in the fall. This is bad news for the bears, but they have been weak in recent weeks and months. They need an extremely strong background in information to change the graphical picture of recent weeks. Also, the dollar may be helped by the saturation of bulls and their withdrawal from the market.
On the 4-hour chart, the pair rebounded from the level of 1.2450, which allows for counting on further growth towards the level of 1.2620. Trader activity in the market remains quite low, and it's difficult for me to imagine an information background that will continue to support the bulls. However, it cannot be denied that the pound may continue rising as it exits the descending trend channel. Holding above the level of 1.2620 will increase the chances of further growth of the pound towards the next Fibonacci level of 61.8%–1.2745.
Commitments of Traders (COT) report:
The sentiment of the "non-commercial" trader category for the last reporting week has become less "bearish." The number of long contracts held by speculators increased by 8109 units, while the number of short contracts increased by 932. The overall sentiment of major players has changed, and now bears dictate their terms in the market. The gap between the number of long and short contracts is 22 thousand: 51 thousand against 73 thousand.
There are prospects for a decline in the pound. Over the last three months, the number of long positions has decreased from 83 thousand to 51 thousand, while the number of short positions has increased from 49 thousand to 73 thousand. Over time, bulls will continue to get rid of buy positions or increase sell positions, as all possible factors for buying the British pound have already been exhausted. Bears have demonstrated their weakness and complete reluctance to advance in recent months, but I still expect the pound to begin a stronger decline.
News calendar for the US and UK:
US – Consumer Price Index (12:30 UTC).
US – Retail Sales Volume Change (12:30 UTC).
Wednesday's economic events calendar contains only two entries, but both are very important. The impact of the information background on market sentiment for the remainder of the day will be moderate.
GBP/USD forecast and trader advice:
Sales of the pound are possible on rebounds from levels 1.2611 or 1.2620, with targets at 1.2517 and 1.2464. Purchases could be considered on rebounds from 1.2464 on the hourly chart, with targets at 1.2517 and 1.2565. Both targets have been hit. New purchases – on closing above the level of 1.2565, with targets at 1.2611 and 1.2690. These trades can be kept open until the first target is hit.
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