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GBP/USD slightly retreated from the week's highs. In general, Wednesday and Thursday allowed us to draw a nearly unequivocal conclusion about the nature of the pair's movements. The pound either rises quickly and sharply or slowly and steadily. But in any case, it rises. It increases even when there are no reasons or grounds for it. And when there are, it rises with more strength. The interest rate divergence between the Bank of England and the Federal Reserve, which will only intensify this year, is not important for the market. The fact that the Fed's rates, if they do start to decrease, will do so only at the end of the year, doesn't matter as well. The fact that market participants were wrong in expecting 5-6 rate cuts in 2024 matters even less.
However, the pound sterling went through a bearish correction, which amounted to a "whopping" 50 pips. Nevertheless, it eventually started a new upward movement in the afternoon. To be fair, take note that the latest US reports were weaker than expected, so the dollar could have fallen further. The number of jobless claims, the number of building permits issued, and the number of new housing starts—all these reports came in weaker than expected, although not by much. Therefore, the market had a formal reason to sell the US dollar. However, we believe that there are much more significant factors that support the dollar. But the market doesn't want to see them.
Yesterday, there was only one sell signal for the pound, identical to the one formed for the euro. At the very start of the European trading session, the price bounced off the 1.2691-1.2701 area, after that it fell by about 50 pips. However, traders could only close the trade in the evening, when the profit level was just 10 pips. Volatility was also weak.
COT reports on the British pound show that the sentiment of commercial traders often changes in recent years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, constantly intersect and, in most cases, remain close to the zero mark. According to the latest report on the British pound, the non-commercial group opened 8,100 buy contracts and 900 short ones. As a result, the net position of non-commercial traders increased by 7,200 contracts in a week. Sellers continue to hold their ground, but they have a small advantage. The fundamental background still does not provide a basis for long-term purchases of the pound sterling, and the currency finally has a real chance to resume the global downward trend. The trend line on the 24-hour TF clearly shows this. Almost all of the factors point to the pound's decline.
The non-commercial group currently has a total of 51,800 buy contracts and 73,600 sell contracts. Now the bears are in control and the pound has a huge potential to fall. We can only hope that inflation in the UK does not accelerate, or that the Bank of England will not intervene.
On the 1H chart, GBP/USD continues to go through a bullish correction, and we've even formed a new trend line. The price successfully breached the 1.2605-1.2620 area on the second attempt, thereby canceling the flat movement. The British pound continues to show that the market is willing to buy regardless of the fundamental and macroeconomic background. Therefore, the pair's movement is illogical, so it's pointless to try to look for any patterns. Even breaking the current trend line will not necessarily mean that a decline will start.
As of May 17, we highlight the following important levels: 1.2215, 1.2269, 1.2349, 1.2429-1.2445, 1.2516, 1.2605-1.2620, 1.2691-1.2701, 1.2786, 1.2863, 1.2981-1.2987. The Senkou Span B line (1.2540) and the Kijun-sen line (1.2599) lines can also serve as sources of signals. Don't forget to set a Stop Loss to breakeven if the price has moved in the intended direction by 20 pips. The Ichimoku indicator lines may move during the day, so this should be taken into account when determining trading signals.
On Friday, no important events or reports lined up for the UK or the US. Therefore, we are likely in for another dull day with low volatility. Logically, the pair should continue its weak correction, but we wouldn't be surprised if it rises.
Support and resistance levels are thick red lines near which the trend may end. They do not provide trading signals;
The Kijun-sen and Senkou Span B lines are the lines of the Ichimoku indicator, plotted to the 1H timeframe from the 4H one. They provide trading signals;
Extreme levels are thin red lines from which the price bounced earlier. They provide trading signals;
Yellow lines are trend lines, trend channels, and any other technical patterns;
Indicator 1 on the COT charts is the net position size for each category of traders;
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