GBP/USD 4H.
This trading week, GBP/USD has not made any higher highs but it has been holding firmly at near 2.5-year highs which is the level of 1.3758. Thus, the uptrend is still going on but the price is not logging higher highs. GBP/USD has been stuck in a 100-pips trading range. The question is open where it is going to move in the near time. On the one hand, it looks like the pair could tumble in the nearest days. If we look at a daily chart, we can clearly see that a non-stop upward move has been going on for 90 trading days that is longer than 3 months. Interestingly, the price hasn't made any downward correction or even a pullback. Thus, from the technical point, a downward correction is looming. The Ishimoku indicator's lines are of little importance now for analysis and forecasts because the indicator forms false signals in the flat market. Besides, a roller coaster turned into a moderate seesaw over the recent weeks. All in all, GBP/USD looks like the strangest currency pair now in terms of its dynamic.
COT report
In the week of January 19 – 25, GBP/USD rose by 80 pips. This is a modest growth, but the pair has been steadily advancing for a long time. A new COT report disappointed traders again. Let me remind you that over the recent 2-3 months, an absolute majority of reports has logged minor changes. At the same time, we cannot say that sentiment of large traders have been stable. The green and red lines of the first indicator, which display changes in net positions of Non-commercial and Commercial groups, clearly reveal frequent changes in market sentiment. These lines frequently reverse their trajectories. It means that large market players are wondering what to do with the pound sterling. Earlier, I told you that things depend on demand for both GBP and USD. That's what COT reports don't display.
If hypothetically demand for GBP declines, but demand for USD also decreases at the same time, this will not lead to GBP weakness. This is what's happening over recent months. Professional traders are unable to state their preferences and rush to revise portfolios. Their sentiment cannot be termed stable bullish. Nevertheless, GBP is steadily moving up. In fact, it has appreciated 10 cents over the recent 3-4 months. In the reported week, traders opened 2,500 new long contracts on GBP/USD and 6,500 new short contracts. Therefore, the net position decreased by 4,000. Sentiment of non-commercial traders turned bearish. Remarkably, the sterling remains unaffected.
It doesn't make sense to discuss the fundamental background for GBP/USD. This week, I gave you comparative analysis of the UK and the US economies after Q2 2020. We came to a conclusion that the US economy has recovered to a less degree because it had contracted to a larger degree. The British economy also got a punch in Q2. However, events of the latest 10 months confirm that traders don't attach great importance to that. Amazingly, market participants take little notice of grave factors like Brexit, a slump in the UK economy in Q2 and Q4, a challenge of the Bank of England about negative interest rates, soaring coronavirus daily rates, new mutant strain, three lockdowns one of which is still going on.
As for the euro, it corrected downwards in the early 2021. Unlike EUR, the pound sterling hasn't done it yet. Thus, the sterling had been following an illogical, non-retraceable, and unreasonable upward trajectory which can persist indefinitely. One of the reasons behind this move could be the fact that $4 trillion has been pumped into the US economy. Such a steady advance is termed speculative growth. At present, I'm poised for the scenario about the sterling's fall which could be steep and unexpected. What I mean to say is that you should ignore placing stop loss levels when trading upwards.
Trading plan for week February 1 – 5:
1)The currency pair doesn't have any obstacles to retain the upward trajectory. Thus, according to a 4-hour chart, upward targets for GBP/USD are seen at 1.3776 and 1.3874. Meanwhile, the pair is trading in the flat market. So, it would be better to trade using junior time frames where you can promptly monitor changes in trading sentiment. Please be aware that the sterling could plunge anytime soon.
2)Meanwhile, sellers are quite weak. Recently, they lack strength even to form a downward correction. Hence, according to 4-hour and 24-hour timeframes, it is out of the question to plan trading downwards. However, it is possible to consider trading downwards in a 1-hour chart when a downward move is underway.
Notes for the pictures
The resistance/support levels are the target levels when opening long/short positions. You can place take profit levels next to them.
Indicators Ishimoku, Bollinger bands, MACD
Areas of support and resistance are the ones from where the price has rebounded or has been rejected a few times.
Indicator 1 in the COT charts is a size of net positions for each category of traders.
Indicator 2 in the COT charts is a size of net positions for the non-commercial group.
The material has been provided by InstaForex Company - www.instaforex.com