GBP/USD 5-Minute Analysis
The GBP/USD currency pair traded without any clear direction on Monday, moving neither up nor down. The pair rose in the first half of the day while it fell in the second half. The session opened with an upward gap, but by the end of the day, this gap was almost filled. Today, the price may reach Friday's close. Although the pound has risen for several consecutive days, it cannot be considered a proper upward correction. Last week, the euro received support from the Eurozone, which helped it start a clear upward correction. The pound, however, lacked such support and consequently experienced more decline than growth. Currently, the price has not even broken the last local high. The trend line was breached, signaling a possible correction, but the price subsequently set a new local low. Currently, it remains below the Senkou Span B line.
This week is critical for both the pound and the dollar. Meetings of the Federal Reserve and the Bank of England could significantly impact market sentiment and attitudes towards the pound and the dollar. Much will depend on how Fed Chair Jerome Powell's rhetoric shifts following the disappointing NonFarm Payrolls report and what signals Bank of England Governor Andrew Bailey sends to the market. Predicting these events in advance is difficult, so the GBP/USD pair could move either up or down this week.
On Monday, the price traded between the critical line and the Senkou Span B line, repeatedly bouncing off one and then the other. Traders could have worked on the rebounds from each line, with at least three trades that each yielded modest profits.
COT Report
The COT reports for the British pound show that commercial traders' sentiment has constantly shifted in recent years. The red and blue lines representing the net positions of commercial and non-commercial traders intersect frequently and mostly remain near the zero mark. We also see that the latest downward trend coincided with the period when the red line was below zero. The red line is above zero, and the price has breached the key level of 1.3154.
According to the latest report on the British pound, the non-commercial group closed 11,300 BUY contracts and 100 SELL contracts, resulting in a net position reduction of 11,300 contracts for the week. The market is still hesitant to sell the pound in the medium term.
The fundamental backdrop provides no support for long-term buying of the pound, which still has a significant chance of resuming its global downtrend. However, an ascending trend line has formed on the weekly time frame, making a long-term decline unlikely until it is breached. The pound continues to rise despite almost all indicators suggesting otherwise (again, in the medium term), and even when COT reports show big players selling the pound, it still manages to rise.
GBP/USD 1-Hour Analysis
The GBP/USD pair continues to decline in the hourly time frame. The upward trend has been canceled, so further declines in the British currency are expected to be strong and prolonged. Traders must remain below the 1.2981-1.2987 range to maintain the pound's decline. There are grounds for a correction, but it will only begin if new weak data emerges from the U.S.
On November 5, the following levels are important for trading: 1.2796-1.2816, 1.2863, 1.2981-1.2987, 1.3050, 1.3119, 1.3175, 1.3222, 1.3273, 1.3367, 1.3439. The Senkou Span B (1.2990) and Kijun-sen (1.2942) lines could also serve as signal sources. It is advisable to place a Stop Loss order at break even if the price moves 20 pips in the intended direction, protecting against possible losses if the signal is false. The Ichimoku indicator lines may shift throughout the day, so this should be considered when determining trading signals.
No important releases or events are scheduled in the UK for Tuesday, while the ISM Services PMI, an essential measure of business activity in the U.S., will be published. The services sector has been stabilizing overall business activity recently, so a drop in this index could prompt another decline in the dollar.
Chart Explanations:
Support and resistance levels: thick red lines around which movement may end. They are not sources of trading signals.
Kijun-sen and Senkou Span B lines: Ichimoku indicator lines transferred from the 4-hour to the 1-hour timeframe. These are strong lines.
Extreme levels: thin red lines where the price previously rebounded. They are sources of trading signals.
Yellow lines: Trend lines, trend channels, and other technical patterns.
Indicator 1 on COT charts: The net position size for each category of traders.
