GBP/USD 5-Minute Analysis
On Monday, the GBP/USD currency pair exhibited movements similar to those of the EUR/USD pair, with one key difference: the pound completely closed the gap that formed at the beginning of the week by the evening. The pound's higher resilience was understandable given the news. Donald Trump imposed tariffs on Mexico, Canada, and China, and he also announced that tariffs would be introduced against the European Union. As a result, it was no surprise that the euro faced a sharper decline than the pound. However, this situation doesn't simplify our analysis. The technical picture is currently disrupted, and we believe that yesterday's movements should not be taken too seriously—just as we should exercise caution regarding Donald Trump, who had frozen the sanctions against Mexico by the evening.
We wouldn't be surprised if today brings another wave of news from the White House. If the market reacts similarly to how it did on Monday, we can expect extremely high volatility. Unfortunately, trading during such volatile and emotionally charged market conditions can be quite uncomfortable. It's worth noting that Monday's macroeconomic backdrop was largely overlooked, despite the release of important Manufacturing PMI indexes in both the UK and the US.
While there were no valid trading signals for the euro on Monday, the opposite was true for the British pound. All trading signals were accurate and effectively executed. At the start of the European session, the price bounced off the 1.2237-1.2255 area, initiating an upward trend. During the US session, the 1.2340-1.2349 area was breached, allowing traders to maintain long positions. By the end of the day, the price reached the 1.2429-1.2445 range. Consequently, a single long position on Monday could have yielded around 150 pips.
COT Report
COT reports on the British pound indicate that the sentiment among commercial traders has been consistently shifting in recent years. The red and blue lines, which represent the net positions of commercial and non-commercial traders, often intersect and remain close to the zero mark. Currently, these lines are near each other, suggesting an approximately equal number of long and short positions.
On the weekly timeframe, the price initially broke through the 1.3154 level before dropping to the trendline, which it subsequently breached. This break suggests that the decline of the pound is likely to continue. However, it's important to note the rebound from the penultimate local low seen on the weekly timeframe, indicating that we might be experiencing a flat market.
The most recent report on the British pound shows that the non-commercial group closed 16,400 buy contracts and 2,900 sell contracts. As a result, the net position of non-commercial traders decreased by another 13,500 contracts over the week, which does not bode well for the pound.
The fundamental backdrop continues to lack support for long-term purchases of the British pound, with the currency facing a real possibility of continuing its global downtrend. Hence, the net position may continue to decline, indicating a further decrease in demand for the pound.
GBP/USD 1-Hour Analysis
On the hourly timeframe, the GBP/USD pair is currently trading in a local uptrend, despite having broken the trendline. While there isn't a solid fundamental basis for the pound sterling to exhibit long-term growth, the short-term upward trend suggests that considering long positions on lower timeframes could be worthwhile. However, we advise against long positions on higher timeframes and in the long term, as the pound's fundamentals remain weak.
For February 4, we identify the following significant levels: 1.2052, 1.2109, 1.2237-1.2255, 1.2349, 1.2429-1.2445, 1.2511, 1.2605-1.2620, 1.2691-1.2701, and 1.2796-1.2816. Additionally, the Senkou Span B line at 1.2340 and the Kijun-sen line at 1.2361 may serve as important signals. It is advisable to set the Stop Loss to breakeven once the price moves 20 pips in the desired direction. Keep in mind that the Ichimoku indicator lines may shift throughout the day, which should be taken into account when identifying trading signals.
For Tuesday, there are no significant events scheduled in the UK, while the ADP report will be released in the US. We anticipate that the market will continue to recover from Monday's turbulence. Unless new executive orders from Trump create unexpected movements, we expect the pair to consolidate around the Ichimoku indicator lines. However, as we know, both Trump and the market can be unpredictable.
Illustration Explanations:
- Support and Resistance Levels (thick red lines): Thick red lines indicate where movement may come to an end. Please note that these lines are not sources of trading signals.
- Kijun-sen and Senkou Span B Lines: Ichimoku indicator lines transferred from the 4-hour timeframe to the hourly timeframe. These are strong lines.
- Extreme Levels (thin red lines): Thin red lines where the price has previously bounced. These serve as sources of trading signals.
- Yellow Lines: Trendlines, trend channels, or any other technical patterns.
- Indicator 1 on COT Charts: Represents the net position size for each category of traders.
