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Hello, dear traders! On the 1-hour chart, the GBP/USD pair carried on with its upward movement towards the 127.2% correction level at 1.3054 on Tuesday, but a sharp drop occurred overnight. This drop is critical for the current chart pattern as it prevented the bulls from breaking the bearish trend. There was no breakout or peak of the last wave. Currently, the instrument has settled below the 1.2892–1.2931 zone, which opens the possibility for a further decline towards the support zone at 1.2788–1.2801.
The wave situation is clear. The last completed downward wave broke the low of the previous wave, while the last upward wave failed to do the same. Thus, a bearish trend is still in progress. A corrective upward wave could have been expected from 1.2931, but as I mentioned, chart signals alone aren't enough. The pound sterling needed bullish momentum, but it failed.
Few events for the pound sterling took place on Tuesday, with the most significant events happening overnight—unrelated to economic data. The US presidential election was a game-changing event. According to the latest available information, Donald Trump has won. Moreover, the Republicans have formed a majority in the Senate and have a strong chance of winning the House as well. If this happens, Donald Trump will hold "superpower," as Democrats would be unable to block most initiatives proposed by Republicans or Trump himself. I have no doubt that Trump will leverage this advantage to the fullest extent. Based on his first term, these initiatives could be quite challenging for China, the European Union, and many other countries. While I can't say whether Trump's presidency is good or bad, the market's reaction to his victory is quite telling.
On the 4-hour chart, the GBP/USD pair made a second rebound from the 1.3044 correction level, suggesting a potential resumption of decline towards the 61.8% correction level at 1.2745. Bullish traders have not managed to close above the 1.3044 level, so the bias remains bearish, favoring further decline of the pound sterling.
Commitments of Traders (COT)
The Non-commercial trader sentiment became slightly less bullish last week, though it remains positive. The number of long contracts held by speculators decreased by 7,967, while short contracts increased by 253. The bulls still hold a solid advantage, with the gap between long and short contracts at 66,000: 132,000 versus 66,000.
In my view, the pound still has bearish potential, but the COT reports don't yet indicate a strong buildup in bearish positions. Over the past three months, the number of long contracts has increased from 102,000 to 132,000, while short contracts have risen from 55,000 to 66,000. I believe professional players will gradually cut long positions or increase short ones (as seen with the euro), as most buying factors for the British pound have already been factored in. Chart analysis suggests that this process may start soon (or has already started, based on wave patterns).
Economic calendar for the US and the UK The economic calendar for Wednesday contains no meaningful reports. So, information on the US election will set the tone throughout the day. The FOMC and Bank of England are due to hold their policy meetings tomorrow.
Forecast for GBP/USD and trading tips
Traders could sell GBP/USD with a rebound from 1.3044 on the 4-hour chart, targeting 1.2931. This target has been hit. The break below 1.2892 enables further selling with a target in the 1.2788–1.2801 zone. I would not consider buying at this time.
Fibonacci levels are drawn from 1.2892 to 1.2298 on the 1-hour chart and from 1.4248 to 1.0404 on the 4-hour chart.
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