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On Friday, the GBP/USD pair reversed in favor of the U.S. dollar on the hourly chart and resumed its downward movement towards the 127.2% Fibonacci level at 1.3054. This movement began two weeks ago after a rebound from the 1.3259 level. A rebound from the 1.3054 level would favor the pound and potentially lead to some growth towards the 161.8% retracement level at 1.3259. If the pair consolidates below 1.3054, a decline towards the 1.2931 level can be expected.
The wave analysis is straightforward. The last completed upward wave easily surpassed the peak of the previous wave, while the new downward wave has yet to approach the low of the previous wave, which is at 1.2665. Thus, we are currently in a bullish trend. However, the large wave sizes mean that any trend change will be detected with a significant delay. I do not see any internal waves that could indicate a trend reversal.
Surprisingly, the news on Friday supported the dollar, even though the reports could have been interpreted in various ways. I believe the unemployment rate is more significant than Nonfarm Payrolls, which led traders to prioritize it. Once again, the payroll data was disappointing. This time, the figure was higher than the previous month but still fell short of market expectations. However, it's time to move on from these reports as we will see another important report this week: U.S. inflation. If the Consumer Price Index slows down significantly (below forecasts), bears may start retreating from the market. Their positions are already quite weak and lack substantial news support. A sharp drop in U.S. inflation would suggest that the FOMC might lower rates by 0.50% as early as next week. Even if that does not happen, the Fed might lower rates more quickly than traders anticipated, as inflation shows a solid move towards the target level.
On the 4-hour chart, the pair consolidated above the 1.3044 level. However, the CCI indicator had been signaling a bearish divergence for over a week, and the RSI had been in overbought territory for a week, which is unusual. Thus, a reversal in favor of the U.S. dollar occurred, and the price began to fall towards the 1.3044 level. A rebound from this level could lead to a renewed rise towards the 76.4% retracement level at 1.3314.
Commitments of Traders (COT) Report:
The sentiment of 'Non-commercial' traders became much more bullish over the past reporting week. The number of long positions held by speculators increased by 8,610, while the number of short positions decreased by 9,537. Bulls continue to hold a solid advantage. The gap between the number of long and short positions is 108,000, with 160,000 long versus 52,000 short.
In my view, the pound still has room to fall, but the COT reports currently suggest otherwise. Over the past three months, the number of long positions has increased from 102,000 to 160,000, while the number of short positions has decreased from 58,000 to 52,000. I believe that, over time, professional traders will begin reducing their long positions or increasing their short positions, as all possible factors for buying the British pound may already be priced in. However, it's important to note that this is speculative. Technical analysis suggests a likely decline in the near future, but for now, the bullish trend remains intact.
News Calendar for the US and UK:
On Monday, the economic events calendar has no significant entries. The news is unlikely to impact market sentiment today.
Forecast for GBP/USD and Trading Advice:
Selling the pair was viable after a rebound from the 1.3258 level on the hourly chart, with a target of 1.3054. These positions can still be maintained. I wouldn't rush into buying until the 1.3054 level is reached, as there are no signals yet.
Fibonacci levels are plotted from 1.2892 to 1.2298 on the hourly chart and from 1.4248 to 1.0404 on the 4-hour chart.
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