Long-term Perspective

The GBP/USD currency pair demonstrated another impressive rise this week. Meetings of the Bank of England and the Federal Reserve provided the market with formal reasons for buying the pound and selling the dollar. On the surface, everything seems logical and consistent—the Bank of England did not cut its key rate, while the Federal Reserve lowered it by 0.5%. However, it's worth noting that the BOE's rate only became higher than the Fed's this week. Let's also remember that the Bank of England started easing its monetary policy earlier than the Fed. In the long run, the Bank of England is expected to gradually lower its rate to a neutral level (perhaps this process may occur more slowly than in the U.S.). Essentially, in terms of monetary policy, the dollar and the pound are in nearly equal conditions, yet it's only the pound that's rising.

We've discussed the economies of the UK and the U.S. many times. Looking at the GDP figures of both countries over recent years makes it clear which country is performing well and which one is stagnating. However, the market is not responding to this factor but rather to its own expectations. Discussions about a recession in the U.S. economy have been ongoing for over a year. As a result, U.S. GDP grew by 3% in the last quarter, and the Fed has already begun an easing cycle (which should benefit the economy). What kind of recession is the market expecting? It's unclear, but the market continues to shed the U.S. dollar.

Throughout 2024, this trend has persisted. Regardless of events in the U.S. or the UK, the dollar keeps falling simply because large players are selling it. Why they're selling is uncertain, but it certainly has little to do with the current fundamental and macroeconomic background.

Currently, the price has risen to the 76.4% Fibonacci level on the daily timeframe, and a rebound from this level might offer the dollar at least a temporary respite. Consolidation above this level could suggest growth up to the 1.4200 level, potentially signaling the end of a 16-year downward trend.

COT Analysis

COT reports on the British pound show that the sentiment of commercial traders has been constantly changing in recent years. The red and blue lines, representing the net positions of commercial and non-commercial traders, frequently intersect and often remain close to the zero mark. We also observe that the latest downward trend coincided with the red line being below the zero mark. Currently, the red line is above 0, and the price has broken through the important level of 1.3154.

According to the latest report, the "Non-commercial" group closed 17,200 buy positions and opened 10,000 sell positions. Thus, the net position of non-commercial traders decreased by 27,200 positions over the week. Nevertheless, the pound continued to rise, despite this decrease.

The fundamental background still does not provide any basis for long-term purchases of the pound, and the currency itself has real chances of resuming a global downward trend. However, an upward trend line has formed on the weekly timeframe, so until this line is breached, a long-term decline in the pound is unlikely. The pound continues to rise against almost all odds, even when COT reports indicate that large players are selling it.

Macroeconomic Events Overview

Macroeconomic events this week held no real significance. The market started anticipating the Fed's 0.5% rate cut from the beginning of the week. On Wednesday, the market didn't fully anticipate the extent of the cut, and on Thursday and Friday, it continued to react to the Fed's decision to lower the rate by 0.5%. The Bank of England's meeting added fuel to the fire. It was announced that the key rate would remain unchanged (a formally "hawkish" factor), and in the future, decisions will be based on incoming information. The market concluded that the Bank of England would ease its policy much slower than the Fed, providing additional support to the pound. Additionally, only one member of the BOE's Monetary Policy Committee voted in favor of a rate cut (while two were expected), giving the market another reason to buy the pound.

Trading Plan for the Week of September 23–27:

Long Positions: The GBP/USD pair continues a formal downward trend. Over the last two years, we have seen an upward movement regularly interrupted by sideways trading. This entire upward movement over the past two years is a correction against a 16-year downward trend. Although the technical picture suggests a rise, we cannot recommend buying the British pound, as it contradicts fundamental and macroeconomic factors. However, for those trading based purely on technical analysis, buying remains relevant, as the price is above all Ichimoku indicator lines on the daily timeframe.

Short Positions: Selling appears more attractive at present but is not particularly relevant. In the medium term, we expect the pound to fall, aiming for the last local minimum at the 1.2034 level. Unfortunately, the market is still in no hurry to sell the pound, and most trading appears illogical. Currently, there are no technical grounds or signals for selling the pair.

Explanations for Illustrations:

• Support and resistance levels (resistance/support), Fibonacci levels – targets for opening buy or sell orders. Take Profit levels can be placed around these points.
• Ichimoku indicators (standard settings), Bollinger Bands (standard settings), MACD (5, 34, 5).
• Indicator 1 on COT charts represents the net position size of each trader category.