GBP/USD – 24H.
The GBP/USD currency pair has continued its increasing upward movement in recent weeks. However, last Thursday and Friday, it began a collapse. We have long warned that the pound could collapse. It should be remembered that this currency has become more expensive for no obvious reason for more than five months. Even better to say this: this currency has become more expensive in the last five months when the fundamental background in the UK was negative. Earlier, we concluded that 60% of the increase in the money supply in America over the past year and 40% of the "speculative" factor played a role. However, on Thursday and Friday, the US dollar began to strengthen across the entire spectrum of the market. The reason for this movement, unfortunately, lies not in the desire of buyers to record a profit on the pound, but in strong macroeconomic statistics from overseas and the United States attack on Syria, which caused a surge in anti-risk sentiment. Thus, the upward trend may well resume. Moreover, if the $ 2 trillion stimulus package is approved by Congress, the US currency will almost certainly begin to depreciate again. The only question is when this process will begin since Congress is almost 100% likely to approve Joe Biden's initiative. From a technical point of view, the pound/dollar pair corrected to the critical line on the 24-hour timeframe. Therefore, a rebound from it can provoke the resumption of the upward movement. But overcoming the Kijun-sen line can lead to a new fall of the pair. So next week, everything will depend on this line.
COT report.
During the last reporting week (February 16-22), the GBP/USD pair increased by 150 points. The last two COT reports signaled an increase in bullish sentiment among the "Non-commercial" group of traders. Therefore, in general, the mood of the major players and what is happening in the market for the pound/dollar pair coincided. During the last reporting week, non-profit traders opened a minuscule number of new contracts. A total of 1 thousand buy contracts and 1.2 thousand sell contracts. Thus, the net position for this group of traders has not changed, as well as the total number of open contracts. Therefore, there should have been no major changes in the market. Nevertheless, the pound continued to grow strongly, so we again return to the hypothesis that the demand for the pound remains relatively high, but a large role in strengthening the British currency is played by the high supply of the US dollar, which is cheaper because of this. COT reports do not take into account the supply and demand for the dollar, so if they change greatly in volume, then a particular currency can move without correlating with COT reports on it. This is approximately the picture we see for the pound sterling. The first indicator for all the time that is placed in the illustration does not show an unambiguous "bullish" mood. The green and red lines constantly intersect and change the direction of movement, which indicates the lack of a clear strategy for professional traders. But the pound continued to grow steadily all this time.
There have been some interesting events in the UK this week. In particular, the speech of the Chairman of the Bank of England, Andrew Bailey. However, until Thursday's events, the British pound continued to grow as if nothing had happened, ignoring all the macroeconomic data. Andrew Bailey's speech did not give any fundamentally new information to the markets, and on Thursday a package of strong macroeconomic statistics in the United States was released, which provoked the beginning of the growth of the US currency. Thus, the factors that led to the growth of the US currency at the end of this week are the same for the euro/dollar and pound/dollar pairs. The question is, what happens next? Will this two-day drop be the beginning of the end of the pound's rise? As we have already said, even taking into account the global fundamentals, the pound has grown very strongly. Therefore, the fall can also be very strong. Especially if the majority of traders start massively reducing long positions to fix a profit on the "bitcoin-like" pound. Therefore, next week you will need to track the news regarding the military operation in Syria. The stronger the new military conflict grows, the higher the probability of continued strengthening of the dollar. You should also carefully monitor the technical picture.
Trading plan for the week of March 1-5:
1) The pound/dollar pair maintains an upward trend, despite even a 2-day drop. Thus, on the 24-hour timeframe, the target remains at the level of 1.4129, which has already been worked out. More important is the Kijun-sen line. If there is a rebound from it, the pound will resume its movement to the north. At the beginning of the next trading week, the most important thing is to understand whether traders are ready for further "speculative" growth of the pair? Or is it time for profit-taking?
2) Sellers are still extremely weak, and the initiative in the market continues to be in the hands of buyers. In recent months, the bears do not even have enough strength to form a correction. The bulls helped the bears in the last two trading days of this week, but will the sellers themselves want to enter the market? As we have already said, the pound has few reasons for growth, but the US dollar will not have them if the US Congress approves a new package of stimulus measures.
Explanation of the illustrations:
Price levels of support and resistance (resistance/support) – target levels when opening purchases or sales. You can place Take Profit levels near them.
Ichimoku indicators, Bollinger Bands, MACD.
Support and resistance areas – areas from which the price has repeatedly bounced before.
Indicator 1 on the COT charts – the net position size of each category of traders.
Indicator 2 on the COT charts – the net position size for the "Non-commercial" group.
The material has been provided by InstaForex Company - www.instaforex.com